Tag Archives: Financials

Yes The Market Was Negative Yesterday But Don’t Pee Your Pants

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It’s amazing the shifts that take place on days where the market moves like it did yesterday. Those that were calling a top a few weeks ago and then went silent were resurrected with their chest pounding announcements for the Dow to drop to zero….view this as entertainment and not as analysis. They are CNBC and other news sites to draw viewers not to personally make you money. While some technical damage was done yesterday it needs to be kept in context of the bigger picture. I stand by my believe that the risk lies to the downside but we still must be smart.

I’ve discussed the sentiment data that showcased the extreme amount of bullishness that has plagued the market (here here here and here). Typically we see sentiment top out before equities do, and so it seems we can check that box. With each post warning caution I would end it with saying we must watch price and let it dictate our actions. This has been critical since we’ve marched higher in the face of the sentiment warning flags.

Tops are a process. We appear to be seeing further weakness this morning which is exactly what equity bears want to see – but not for the reasons you may think. The market ‘needs’ to go down for those that are on the sideline waiting to “buy the dip” to get excited. This gives the last group of buyers an opportunity to get long and we could very well see this happen a few times. What I’m looking for are signs of market internals cracking with each attempt to recover from the weakness.

You cannot manhandle Mr. Market. He’ll beat you every time. We saw yesterday a near 20% move in the $VIX. This took it to an overbought level on various measurements, this doesn’t mean it must drop but it could signal a breather is necessary. If you’ve been doing the potty dance waiting for stocks to dive don’t get too excited yet. Watch the market leaders, keep an eye on transports, financials, and cyclicals. When these begin to crack, and not before, is when traders will likely begin to get worried.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

New Short-Term High Could Take Us Either Way

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I’ve spent most of the evening thinking about this tape. With today’s close we are back to the early July high, which means it’s time to open the hood and look at the engine to determine if what’s driving this market is sustainable or not.

What is so frustrating is there doesn’t seem to be a clear signal from what I’m seeing. I could go either way. On one hand we have the Aussie dollar, which mirrored the move we saw in the S&P 500.

We also have the S&P breaking above a falling trendline (blue) and it still has room to run until it hits the rising trendline (orange) around 1390-1400.

We also have the fewest number of bulls based on AAII Sentiment data since August ’10, which has historically been a fairly good bullish contrarian indicator.

While on the other hand neither copper (JJC), China (FXI), the financials (XLF), or Technology (XLK) participating in hitting their early July highs. These four are typically leading indicators of price movement in the major indices. When we don’t see cooperation in any of them, a warning sign goes up.

Also, if you look at the S&P 500 chart posted above, in the bottom panel we see the On Balance Volume indicator which I’ve talked about numerous times. OBV simply adds the number of shares traded on positive days and subtracts the number of shares traded on negative days to give an idea of whether buyers or sellers are controlling the tape. During the recent rally we have not seen buyers step up in force while the S&P got back over 1370.

Finally, small caps (IWM) were also not present on the list of those hitting their short-term high. Typically, I like to see large caps be accompanied by the small caps during critical market junctures as a sign of traders adding beta to their portfolios. We saw a similar divergence where small caps were nowhere to be found when the S&P hit a new high back in April, with IWM putting in a lower high.

So now you can understand my frustration. We have cooperation from some and a lack there of from others. Although it will take more market action to play out before we may know if this rally can continue or if the intermediate downtrend is still intact, it seems there may be a slight bias to the upside for the time being.

 
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.