Petróleo sob pressão após ataque dos EUA ao Irão

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FRIDAY a.m.
July 11, 2003



No More Juice
by David Nichols

Yesterday we had real evidence of a widespread "buy-the-dips" mentality among short-term traders. Even though the market sold off hard all day, people were treating this as an opportunity to go long. We've seen evidence of this previously during the uptrend, but never to this extent.

The VIX spiked in the morning -- as it usually does when the market makers raise the price of options into the initial surge of demand -- but then managed to settle back down the rest of the day, in the face of declining prices. There wasn't any fear during yesterday's selling, with lots of calls flying out the door.



Such complacency in the face of danger is usually an indication that it will take more selling to stoke up the needed fear response. It's now become accepted dogma that the Fed has a "liquidity put" in place under the stock market. With such powerful forces amassed behind a bull move, traders are feeling that pullbacks are going to be shallow, and any dip is a chance to get long.

This is an important development because it's something new for this uptrend. Even though the VIX has stayed low and remained low, there has been no shortage of fast money looking to bet against this trend -- at least during the parts of the trend that were making significant upside progress back in April and May.

The willingness to bet heavily against this trend was extinguished on the June 6th spike, and the market has not made any headway since that day. Indeed, the SPX is down 20 points from that high. The further development of a bullish mentality now among short-term traders -- with prices lower -- could be signaling the start of the anticipated bigger pullback.

I've been watching my fractal dimension trend/congestion indicators closely. Yesterday's decline triggered solid down trends in the shorter time-frames, but interestingly it didn't trigger a trend on the important 150 minute chart. I favor the 150 minute chart because it's like a more-responsive daily chart. This time period divvies up the day into 3 important segments -- the morning session (9:30 to Noon), mid-day (Noon to 2:30), and afternoon, with the last 90 minutes getting its own candle. Even though this last period is an hour short, it's such an important part of the trading day that it deserves its own candle.

The 150 didn't start a downtrend yesterday. The move down, while large, was still just working off and "congesting" the last move up. This tells us there is still a lot of room for a broader sell-off to get rolling right away; or conversely, there may not even be a bigger move down. The market is also in a position to take off again to the upside, if that is still the dominant intermediate-term trend.



You know how I feel. Sentiment is just too bullish. Those betting on the uptrend here think the market can squeeze more juice out of an already smushed-up grapefruit. Perhaps with some extra pressure a little more juice can come out, or perhaps the Fed can pour some more grapefruit juice on the desiccated husk. But there's a much bigger and juicier "down grapefruit" on the table, and the market is way overdue to turn its attention to that source of juice for a while.

Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: Filled up by 3 points to 5% full of negative sentiment.

SHORT-TERM: Stuck in neutral.

MID-TERM: Stuck in neutral at 75% with a Confidence Diffusion Index reading of a bearish 1, "bearly" into the red from yesterday's neutral position.

LONG-TERM: Weekly gauge remains near a maximal toppy place at 98% in the advance phase but with 0 on the CDI, suggesting that the trend has exhausted itself (duh!), but still refusing to roll over.

BOTTOM LINE: Both the short and mid-term gauges are stuck in neutral despite today's large drop in price. Sentiment refuses to become more bearish even as the prospects of a break to new highs dim. This faith the market has in the robustness of the 2H03 recovery is fairly imperturbable. As contrarians imperturbability should cause us no mean perturbation.

If our anthem is to buy terror and sell glee, then we should certainly be soothed by anxiety and fret over serenity, and right now the market is positively beatific (so I'm chewing my fingernails).

This is what a Right Shoulder should do. Lull the market to sleep...(that's what the SPX "pinch" between 979 and 1007 has likewise done...same idea). Thing is, things probably ARE getting a bit better. But does the market have a right to be so darn smug about it? Probably not.