Thursday's market was inexplicably weak heading into the afternoon, which is a decided change of character from what we've been seeing over most of this year. Let's face it,k we've all become a little jaded about the market being able to easily stage a rally from oversold levels. When it doesn't, that's a wake-up call.
It looks like this decline is finally starting to trigger some of that ol' fear response among traders. The VXO -- the old VIX -- finally climbed back up above 20. And suddenly, I'm not hearing any talk or getting any e-mails that "the VIX is going to 12".
The pendulum of sentiment, as measured on a daily basis, is now swinging back towards rising fear. We've now solidly moved into a mid-term decline phase for sentiment. You can read more about this on the dashboard below. However, a mid-term trend is made up of lots of smaller short-term trends, gyrating back and forth underneath a larger mid-term market structure.
Before you can really label a mid-term decline as "confirmed", you've got to see how the market handles a bona-fide short-term advance phase. You need to see the market make at least some effort back to the upside. In the process, the crowd usually gets more and more bullish, even though price isn't coming too close to taking out the previous high. In other words, it takes less and less upwards price movement to get the crowd bullish and feeling good.
Lately we haven't been seeing this pattern. The short-term advance phases have been outpacing the declines. Yesterday started out as another perfect set-up for a grinding advance phase; indeed, it was sort of assumed that we'd get the requisite bounce, especially after some initial terrorist scares that quickly faded. But the market, in its own perverse way, failed to rally -- and failed pretty badly, too. The down fractal I've been talking about ever since the spike high on Nov. 3rd actually looks to have some real punch to it.
A good set-up for a Rydex trade is now getting close. The bullish crowd is starting to sweat more noticeably, and prices just aren't responding to sell-offs with that same old vigor. So we'll try to get a position on a failing rally from here. We should actually have a good chance to get loaded into bearish funds heading into next week, as the VXO works off some of this initial bearish momentum.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Filled by 4 points to 15% full of negative sentiment.
SHORT-TERM: Ended the day in Neutral with a Decline bias after trying to cycle into an advance phase and then failing.
MID-TERM: Progressed 11 points to 60% on the decline side with Confidence climbing a click to a bearish -2
LONG-TERM: Progressed 3 points to 22% on the decline side but with Confidence remaining at a Neutral 0.
BOTTOM LINE: With Thursday afternoon's precipitous market decline the market is very oversold on both price momentum and the momentum of sentiment. Let's look for either a pause in the decline or a short-term advance that has a bit more sticking power than did Thursday morning's. Beyond that we'll look for further downside (perhaps down to the SPX 990-1010 band). A move like that would probably come close to exhausting our mid-term gauge and could provide footing for a mid-term advance from there.
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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