The market's brief foray into constructive sentiment patterns came to an end with Tuesday's trading. Over the Holiday period, the VIX and VXO moved up tepidly while the indices tacked on big gains. This is generally a bullish sentiment pattern implying continuation, as it demonstrates there is enough fear and doubt among the trading community about continued upside to actually allow the upside to continue.
Yesterday the VXO (the old VIX) sank all the way down to a closing value of 14.85 -- making a new multi-year low. It's hard to construe that as bullish. It's a lot better, as a general rule, to buy when the VXO is high.
Complacency is now the market trait that is extremely high. A VXO under 15 is not an everyday occurrence. This move also has our Sentiment Tank completely drained down to zero, again. Even during this monster up move, when the Tank hits zero it's been significant, ushering in at least some sort of corrective period.
This protracted movement down on the VXO is definitely one for the record books, and at this point there's just no sense in trying to predict when this gauze of complacency is going to be lifted. The somewhat subdued stock mania going on right now should end up being absurdly obvious in hindsight, just as the blow-off at the end of the bull to Nasdaq 5000 was so obvious after the fact. Nobody dared speak ill of the market at that time, except for a few curmudgeons who had been talking ill for years.
Which brings up a good point: who was right back then? Those who were enjoying the wild party, or those grumps warning of the approaching hangover? It's hard to say. Depends on your viewpoint, and how you navigated those tricky times. Is it right to buy into a bubble?
I think the tenor of this current market is a little different. Most people now have a fantasy that "this time they'll get out in time"; that they can play the upside as some sort of rational bubble. I don't think that's how markets work, however.
There's also a general feeling that the market "owes us" some good years. Such thoughts are just magical thinking. The market owes us nothing. The scary thing is how much magical thinking there seems to be among Central bankers and policy makers too. That self-congratulating speech by Alan Greenspan over the weekend was particularly troublesome, I thought.
But there's one certainty about the markets, and that is how they end up fooling everybody at some point -- bull, bear, or agnostic. Another certainty is that trends can go further and last longer than anybody can predict, and can often go much farther and last a lot longer. It's certainly possible that this inflating market now could turn into something as big as the previous one, and the averages (well, the Dow, anyway -- not the Nasdaq) could keep moving up and actually hit new highs over the next few years.
Just think: If the current administration is re-elected and makes it a priority to privatize social security during a second term -- and this is already being bandied about -- then that could usher in an insane boom time for stocks, albeit an ultimately artificial one. As investors, we'll have to keep close tabs on that topic.
It's equally possible in that scenario that even if the markets do move up and make new boom highs, they could then crash down to terrifying lows not even dreamed of during the first phase of the bear market.
I have a feeling we'll see both new highs, as well as scary, way-down-there lows, before this next 10 to 15 year stretch is over. We could also see more political and social upheaval than you can even imagine now. The coming period is not going to be boring, that's for sure, when all the seeds sown over the last few decades -- both good (computers and technology, globalization, communication) and bad (unprecedented debt, credit creation, terrorism) start to grow and mesh in chaotic, unpredictable ways.
The main warning shot across the bow right here is the major decline in the U.S. dollar. That didn't happen last time, during that now-admitted bubble. Maybe it's part of Greenspan's "management plan" this time. This dollar situation is the big enchilada, much more important than the stock markets. If a crumbling dollar starts to have repercussions throughout the global speculative community, then we'll all have a big problem.
Okay, pardon my rambling this morning. I just started typing, and didn't stop. I probably should have.
As for the current markets, not a whole lot changed yesterday, other than the volatility indices. There is still enough short-term juice on the fractal dimension charts to push the market higher, but the longer term trends are very, very stretched already.
We'll still be wanting to short any quick move up from here -- particularly one that makes you utter something out loud (I won't say what.....) when you first glimpse a fresh quote.
This is actually my single best "homespun" rule of trading and investing: If you ever find yourself involuntarily muttering scatological phrases upon seeing a fresh quote -- in amazement, not fear -- it's invariably the exact right time to take the other side of that trade. Personally, I call it my "Holy $%@# Indicator".....but you probably have your own moniker for this indicator already in use...
Sentiment Dashboard
By Adam Oliensis
SENTIMENT TANK: Drained by 4 points to 0% FULL of negative sentiment. The tank is completely empty!
SHORT-TERM: In an extremely mature Advance phase that's ripe to expire.
MID-TERM: Rolled from its Decline Phase to Neutral but with Confidence regressing from bullish to Neutral at ZERO.
LONG-TERM: Progressed 1 point to 86% on the Advance side but with Confidence regressing 2 points to a barely bullish +1
BOTTOM LINE: The tank drained to EMPTY on Wednesday while the SPX progressed a non-whopping 2.66 points. The last time the Tank was EMPTY was December 17. That was within a day of the market's entering its seasonally strongest period of the year (Santa took off from the North Pole the day prior). While we are still in a seasonally solid period through mid February the bias is not so much up as it is "choppy-to-up" until January 27.
Yesterday I wrote in this space that the market may have one last paroxysm to the upside in it as the tank drains to 0%. Well, the paroxysm didn't amount to much on the SPX, though it did contribute 20 points to the COMP. The market can always defy expectations and gravity, but all things considered, and with the Tank now EMPTY, it looks like a dip is imminent. Most probably a buyable one.
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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