Olhem o David Nichols de sexta-feira e comentem
Enviado: 28/7/2003 11:26FRIDAY a.m.
July 25, 2003
Conditions Ripe for a Decline
by David Nichols
Yesterday we got the VIX foray into the teens that I've been looking for, and tellingly, it was instantly rejected.
Once again the market couldn't hold onto opening gains from better-than-expected news, in this case the weekly jobless number. Upside exhaustion is finally taking hold.
Here's how it looked on the VIX
The swift descent down on the VIX from 23.47 to 19.69 is what I call an "advance phase" for the market, as this is a time when the momentum of sentiment is moving towards rising bullishness. (I'm indebted to sentiment guru Phil Erlanger for originally helping me with this concept). Such a decline in the VIX is direct evidence that the sentiment of the crowd is becoming more bullish, and the usual reason for this -- in such an advance phase -- is that prices are going up.
However, sometimes we see such advance phases in sentiment where prices don't actually go up very much, or even go down. That's a hallmark of a market that's getting ready to roll over. We saw "advance phases" of sentiment throughout the bear market where the market actually got pounded down pretty hard. But as a rule, when it takes less and less upward price movement to get the crowd excited about the market's prospects, then that's a waving red flag about a coming sell-off.
In this latest advance phase prices didn't get much done to the upside. That's our big clue this uptrend is tired, and in need of a cleansing sell-off. I think we're on the verge of that sell-off immediately, right now. A big reason for this interpretation is the amount of price damage that was done on just the small pop up in the VIX yesterday afternoon
We'll need to see some follow-through during the first hour today to confirm a real change of trend is underway. There's never a guarantee that a selling wave is going to spark to life. But the conditions right now are absolutely perfect for this.
So, a move up now in the VIX will start a counter-vailing "decline phase" in sentiment. As the VIX moves from low to high, more and more people will become convinced that the market is going lower, which generally perpetuates a rolling wave of selling pressure.
Despite the widely held academic belief in the "Efficient Market Theory", markets are are far from efficient. This academic theory espouses the belief that market information is instantly processed in toto by the sum consciousness of market participants, and all relevant information is instantly reflected in stock prices.
That's just ridiculous. Individuals react to market stimulus in idiosyncratic, personal ways. It takes varying degrees of evidence to get people to enter and exit positions. Most people get more bullish the higher prices climb, and more bearish the lower prices go. That's not exactly efficiency in action.
This is also the reason that contrarian investing is the only way to consistently pull money out of the market. You have to be in there early on the opposite side of the crowd, as the market forces them one-by-one to surrender their positions in your favor.
So we'll look for some upside follow-through on the VIX, accompanied by further selling. Keep in mind that we're hitting the summer doldrums, and there's not much urgency in the market right now. But we'll be on the lookout for this scenario. It could be the start of a sneaky downtrend that takes the bullish majority by surprise.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Unchanged at 4% full of negative sentiment on a closing basis. Intraday, however, it dipped as low as 0.3% full of negative sentiment before coming back to unchanged.
SHORT-TERM: Hourly advance phase expired during the lunch hour and rolled into nascent decline phase.
MID-TERM: Progressed 3% in its decline phase to 43% with a Confidence Diffusion Index (CDI) that popped up from 0 to a bearish 2 (out of 7). We have lately started seeing the CDI just START to make a little noise...some faint ursine growling. Still not clear how serious it is, but worth being aware of.
LONG-TERM: Remains neutral at 95/5 with a neutral (0) CDI.
BOTTOM LINE: In Thursday morning's SENTIMENT DASHBOARD I included a chart of the VIX showing its 3-month descending triangle, noting that the triangle would very likely break within the subsequent 11 trading days. Well, it took 2....for it to at least start make a real stab at doing so.
On an intraday basis the VIX broke 20 to the downside on Thursday only to skip back up into the triangle as the market sold off in the afternoon. That dip in the VIX took the tank down as low as 0.3% full of negative sentiment intraday. Is that the signal that the top is in? Could be. It looks like it could develop into the major signal. But we won't know until we see how the VIX reacts to its line of declining tops now near 23 and until the SPX responds to 972 to the downside (the bottom bound of recent congestion).
Numerous sentiment indicators show EXTREME sanguinity while the senior indices continue to flirt with the lower limits of their trading ranges. This could get REALLY interesting REALLY quickly.
July 25, 2003
Conditions Ripe for a Decline
by David Nichols
Yesterday we got the VIX foray into the teens that I've been looking for, and tellingly, it was instantly rejected.
Once again the market couldn't hold onto opening gains from better-than-expected news, in this case the weekly jobless number. Upside exhaustion is finally taking hold.
Here's how it looked on the VIX
The swift descent down on the VIX from 23.47 to 19.69 is what I call an "advance phase" for the market, as this is a time when the momentum of sentiment is moving towards rising bullishness. (I'm indebted to sentiment guru Phil Erlanger for originally helping me with this concept). Such a decline in the VIX is direct evidence that the sentiment of the crowd is becoming more bullish, and the usual reason for this -- in such an advance phase -- is that prices are going up.
However, sometimes we see such advance phases in sentiment where prices don't actually go up very much, or even go down. That's a hallmark of a market that's getting ready to roll over. We saw "advance phases" of sentiment throughout the bear market where the market actually got pounded down pretty hard. But as a rule, when it takes less and less upward price movement to get the crowd excited about the market's prospects, then that's a waving red flag about a coming sell-off.
In this latest advance phase prices didn't get much done to the upside. That's our big clue this uptrend is tired, and in need of a cleansing sell-off. I think we're on the verge of that sell-off immediately, right now. A big reason for this interpretation is the amount of price damage that was done on just the small pop up in the VIX yesterday afternoon
We'll need to see some follow-through during the first hour today to confirm a real change of trend is underway. There's never a guarantee that a selling wave is going to spark to life. But the conditions right now are absolutely perfect for this.
So, a move up now in the VIX will start a counter-vailing "decline phase" in sentiment. As the VIX moves from low to high, more and more people will become convinced that the market is going lower, which generally perpetuates a rolling wave of selling pressure.
Despite the widely held academic belief in the "Efficient Market Theory", markets are are far from efficient. This academic theory espouses the belief that market information is instantly processed in toto by the sum consciousness of market participants, and all relevant information is instantly reflected in stock prices.
That's just ridiculous. Individuals react to market stimulus in idiosyncratic, personal ways. It takes varying degrees of evidence to get people to enter and exit positions. Most people get more bullish the higher prices climb, and more bearish the lower prices go. That's not exactly efficiency in action.
This is also the reason that contrarian investing is the only way to consistently pull money out of the market. You have to be in there early on the opposite side of the crowd, as the market forces them one-by-one to surrender their positions in your favor.
So we'll look for some upside follow-through on the VIX, accompanied by further selling. Keep in mind that we're hitting the summer doldrums, and there's not much urgency in the market right now. But we'll be on the lookout for this scenario. It could be the start of a sneaky downtrend that takes the bullish majority by surprise.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Unchanged at 4% full of negative sentiment on a closing basis. Intraday, however, it dipped as low as 0.3% full of negative sentiment before coming back to unchanged.
SHORT-TERM: Hourly advance phase expired during the lunch hour and rolled into nascent decline phase.
MID-TERM: Progressed 3% in its decline phase to 43% with a Confidence Diffusion Index (CDI) that popped up from 0 to a bearish 2 (out of 7). We have lately started seeing the CDI just START to make a little noise...some faint ursine growling. Still not clear how serious it is, but worth being aware of.
LONG-TERM: Remains neutral at 95/5 with a neutral (0) CDI.
BOTTOM LINE: In Thursday morning's SENTIMENT DASHBOARD I included a chart of the VIX showing its 3-month descending triangle, noting that the triangle would very likely break within the subsequent 11 trading days. Well, it took 2....for it to at least start make a real stab at doing so.
On an intraday basis the VIX broke 20 to the downside on Thursday only to skip back up into the triangle as the market sold off in the afternoon. That dip in the VIX took the tank down as low as 0.3% full of negative sentiment intraday. Is that the signal that the top is in? Could be. It looks like it could develop into the major signal. But we won't know until we see how the VIX reacts to its line of declining tops now near 23 and until the SPX responds to 972 to the downside (the bottom bound of recent congestion).
Numerous sentiment indicators show EXTREME sanguinity while the senior indices continue to flirt with the lower limits of their trading ranges. This could get REALLY interesting REALLY quickly.