I went to the star-studded Premiere of my Uncle's film Angels in America last night (yes, he's the Mike Nichols), and it was intense -- especially if you're a fan of Al Pacino, who is brilliantly crazy as attorney Roy Cohn. This isn't fluffy, throwaway "easy watching" by any stretch. It's actually cerebral and challenging, which is something you don't see too often anymore in movies. You can look for his mini-series on HBO starting December 7th.
The market started falling away from the "line of central tendency" yesterday, on a sluggish, lackluster day of trading. There was not much energy. This happens frequently, in what I refer to as congestion days. With yesterday's slight pullback, the market has neutralized and put itself in position to again start a trend on the 150 minute SPX chart.
This is the markets way of storing up energy for the next streaky chaotic move, which should be down according to my reading of what's going on here. When the market pinches in to the upside -- in a parabolic manner -- and gives a fleeting touch to an important resistance level in the process, then an unexpected bifurcation to the downside is ready to unfold.
If the uncanny Nikkei parallel from the early 90's is going to hold up -- and I think it will -- then we need to be on the lookout for a sucker punch to the solar plexus of the bullish majority. The Nikkei analog lost a whopping 20% in about a month back then, and a corresponding move now in the S&P 500 would take it from 1060 to around 850, by mid-December.
This also fits in well with the scheduled nine-month cycle bottom that Tom McClellan has been telling us about, due some time in December. As you'll no doubt remember, the last nine-month cycle bottom came right at the March 2003 lows.
In order for this scenario to be nullified, and the Nikkei analog to fall into disrepute, the SPX needs to rally strongly over 1060 and just keep motoring higher.
For me, this 1060 level is a great "line in the sand". I'd even consider being a very nervous long above 1060, with a hard and fast escape plan to sell and go short on any subsequent move back down through that same 1060 level. In other words: long above 1060, short below it. If you're fast on the draw and an accomplished trader, you can conceivably make great money in either direction with just a little risk due to slippage; or perhaps getting chewed up a bit in commissions by having to jump back and forth a few times before seeing a trend take root in one direction.
I've often wondered why this isn't a more widely followed strategy, as it really just involves identifying important potential chaotic points, and then letting the market tell you what to do. And believe me: You can catch big moves this way. At this point, I'm sure only a few even remember me telling those who were desperately short and bearish back in early March to "stop-and-reverse" and go long around the SPX 815 level. The market never even looked back from there. I realize I was pussy-footing around with this strategy, and not many were paying attention, but during that war environment (does anybody even remember WMD?) I deemed end-of-day Rydex positions to be too risky. But nevertheless, this strategy can work brilliantly when there is an overload of sentiment in one direction, as we had back then.
We certainly have an overload of sentiment again now, but this time on the opposite side. Getting gung ho on the long side with the VIX and VXO at multi-year lows is just not my cup of tea. But there is a risk-reduced way to play it with such a stop-and-reverse strategy. I'm throwing it out there if you're a skilled, active trader.
But we'll deal with that 1060 level if the market even sees it again. If I'm right and there is indeed a down fractal about to unfold right now, then the risk-reduced way to play that scenario is to watch the opening salvo to the downside, and then carefully gauge the bounce off that initial leg down. The least risky time to go short would then be when the market fails again, powering down from that reaction bounce to make a new low.
If you're braver, and the market gives reversal clues prior to eclipsing the 61.8% retracement level, you can always try to front-run and try a short there. I've found that a really strong down fractal won't even retrace 38.2% of the first down leg. It's got too much energy to be released to the downside to wait around. So we'll have to just be patient here and see which scenario is going to unfold.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 0.4 points to 1.1% full of negative sentiment.
SHORT-TERM: Remained in a Neutral posture.
MID-TERM: Remained Neutral. The raw score pipped up a fraction, which rounded off to 92 from 91. (We subtract the raw score from 100 when the gauge is moving down. That's how we derive the 92/8 dual reading.) But confidence regressed point to a bullish 2.
LONG-TERM: Remained unchanged at 96% on the Advance side but with Confidence regressing a point to a bullish 3. (The gauge is higher than it was last Friday so it has not dipped back to neutral.
BOTTOM LINE: . The tank has settled very close to 0% for quite a while. If the market were soaring higher that would be bullish. But the SPX has been grinding and creeping higher with volatility dropping lower and lower. While there are never any guarantees in the market, this kind of behavior almost always resolves at some point in a sharp drop that rouses fear. The past 2 days have seen the Put/Call Ratio around 0.60, indicating a preponderance of trade in Calls relative to Puts. The too-bullish imbalance continues. We're watching for the break in sentiment...It almost always does come, it's just a question of when. I seriously doubt that the SPX can move through 1070 (the volume-weighted average price since the inception of the bear market) without the tank first spiking higher.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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