Monday saw a teensy bit of constructive sentiment action for a continued bullish case, as judged by the VXO -- the implied volatility measurement on S&P 100 (OEX) options. I haven't shown a chart like this in a while, as implied volatility has taken it on the chin lately as a market timing tool, but nevertheless it's still important stuff.
This admittedly confusing chart shows the VXO as the candles, and the OEX as the blue line. The point here is that the VXO has increased as the OEX has hovered around the same price levels (arrows on chart). When the demand for options rises in the face of prices that aren't declining, then that's generally a sentiment footprint for more upside.
Granted, the VXO is still very low, and sentiment measurements have not meant too much during this uptrend. And our sentiment tank is only at 3% full. The majority are in control, and show no signs of heading for the exits. But... there is at least a tiny trace of doubt creeping in now about the sustainability of this fast move up. Perhaps this trace of doubt will lead to one more blow-off move to the upside -- stretching up to that SPX 1150 level I've been talking about. I still think we'll want to get short on any swift move above 1140 on the SPX, as it's just extremely rare for the upside to get this stretched.
Back during the mean old bear market, we went long a number of times when prices got stretched too far to the downside. It would be the opposite situation here on another aggressive push up, and we'll want to act in the same manner now and take the opposite side of all that euphoria. Plus it's a pretty fair bet that the 50% retracement level of the bear market is going to keep a lid on things for a while.
Turning to the latest fractal dimension readings, the daily chart has started to congest off that recent super low trend reading.
The 150 minute SPX chart is now showing plenty of juice available for a trend to get started. These 150 trends are usually good for about 20 SPX points. If the trend here is down, slicing through the red line (a simple 20 period moving average) and simultaneously starting a downward path on the fractal dimension, that would indicate a move back down to SPX 1100 was getting rolling. Conversely a bounce up off the red line which starts an uptrend could stretch all the way up to SPX 1150.
Then again, it's options expiration week, and such weeks tend to go flat around Wednesday, with directional moves getting squashed in both directions. The markets can work off fast moves in two ways -- they can move sideways, or they can retrace. A relatively flat market through expiration would be a bullish sign, as sideways congestion is invariably a sign of strength for the prevailing trend.
So we'll short a spike up from here, but the short side should be avoided for anything other than a quick trade if the market can continue to grind its way up.
Sentiment Dashboard
By Adam Oliensis
SENTIMENT TANK: Filled up a point to 3% full of negative sentiment.
SHORT-TERM: Remained in its Decline phase, but the declined weakened.
MID-TERM: Remained in Neutral at 56/44 with Confidence regressing to a Neutral 0.
LONG-TERM: Remained unchanged at 85% on the Advance side with Confidence progressing 1 point to a bullish +2.
BOTTOM LINE: Though I hate to repeat myself, the market's capacity to ratchet incrementally higher on just the faintest whiffs of negative sentiment in the tank must be construed as bullish...until we get a change of character. I have previously shown studies in which we've seen the VIX and the Put/Call Ratios remain at readings well below where they are now. These periods have historically lasted as long as 7 months to 4 years, taking the VIX down near 10 (currently 16.8) and the Put/Call Ratio's 20-dma down near 0.4 (currently about 0.70).
The market will tell us when it wants to change character. That could be very soon, or this grinding uptrend could persist until everyone who's bearish is dead from agita.
Major earnings announcements are due this week. Expiration comes on Friday. As we've also previously discussed, these two sets of wildcards could make the market extremely squirrelly.
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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