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Thursday, August 4, 2011

Hello, Bear Market

If there is any consolation on a day like today, my bonehead move from yesterday (selling all my open positions minutes before the big reversal) was vindicated today. the selling was massive and broadly based (just wait until you see the new highs update tonight).  I have a blue arrow pointing out today's volume. This could have been the washout that gets all the sellers, but the buyers did not come in t save the day. I had to extend the chart out to 9 months to find support, and the nearest I have is the low from the little correction we had in November of last year.  That is almost 30 points from here, so I[m not expecting a bounce here, and there is no way in hell I;m going to trade in front of tomorrow's NFP, which could be apocalyptic. We are very unlikely to crash in August, but that doesn't mean it can't happen.

The Nasdaq 100 is dominated by a few very large, and relatively strong, stocks, and is probably what has kept the market from a crash. This sliced the 200dma today, but is still above the June low. Unfortunately, there are probably a bunch of margin calls going out as I write this, and that means more selling here as traders need to raise cash.

I don't look at the VIX that much any more, as I think the existence of inverse ETFs has somewhat diminished it's reliabilty as a sentiment indicator. Readings over 30 have traditionally been a buy-with-both-hands indicator, but that is in bull markets. By my way of looking at it, we have just entered a bear.

This is a more reliable indicator to me, but it appears I can no longer get it in a candlestick chart, and what's worse, it looks like this data is a day old. A reading under 30 here usually means a short term trend reversal is coming, but again, that is in a bull market. We could be stuck under 30 for quite a while in a bear. I will be doing some more work with this indicator this weekend t see just what is does do in bear markets.

The picture is the same on the NYSE. In the last few months, the time over 50 has been shorter than the time under 50, the exact opposite of what we have been seeing for the last couple of years, another indication that we are in the midst of a pretty substantial trend change. Now the fun begins.

I will have the new highs update shortly.

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