Ao minuto: Praças europeias respiram de alívio, indiferentes a possível violação de cessar-fogo

[Camisa Roxa]

A ver se é desta

[Camisa Roxa]

Aqui vão os 3 gráficos

[Capablanca]

... o facto de diariamente postares aqui esta análise. A de hoje está muito boa, é pena não termos também os gráficos, já agora gostava de ver como é que o David os «trabalha».

Abraço !

[Camisa Roxa]

THURSDAY a.m.
February 6, 2003



It's never easy
by David Nichols

The main job of the market is to fool as many people as possible, as often as possible. Only this way can the market work efficiently. Money always flows from the majority to the minority, in the end. There are always more losers than winners in this game.

But it's trickier than just making sure you're not part of the crowd. Really, you just want to make sure that you are not part of a crowd when sentiment is hitting extremes . Otherwise, it can be highly profitable to jump in early, watch the consensus build all around you, and finally take profits when sentiment gets too frothy in one direction.

Right now there is mounting evidence that the crowd is getting bearish. But have we hit extremes? Not quite yet.

It's interesting what the market has been doing over the past week to those who have staked out bearish positions on the break of the obvious support line around SPX 875. It's been trying to clear out as many of these shorts as possible, by staging rally after rally back to the underside of the broken support. On each rally, more shorts cover and bail out on bearish bets, and bulls are offered a dose of hope that the worst is really over.



But the remarkable thing is even this dynamic -- the market trying to scare out the shorts -- has failed to push the market up even past SPX 865. Every time it's reached up, it's been battered back quickly. This weakness is a strong clue that the bearishness is not, in fact, overwhelming at the moment. Fear is present and palpable, but it's not running amok.

The VIX is at a relatively high level in the mid-30s, but we have to be careful these days about what we call "high" on the VIX. The last outbreak of bullishness could only carry the VIX down barely below the 27 level, which is quite a bit higher than the VIX readings in the teens we've seen at other "blue sky" moments. You can get into serious trouble if you treat the VIX as a static indicator, using absolute values as your guide.

That's why we have our sentiment tank, which normalizes the behavior of the VIX over its recent history, and also throws in the put/call ratio as a component. We want to know how the VIX is behaving dynamically. Right now, the sentiment tank is high at 74%, but there is still a lot of room to get to 100%. With the market failing to even make a serious push over broken support, this looks to be a time when the sentiment tank could fill up to 100%.

We can see on a weekly chart of the VIX that it's definitely been moving up, but hasn't hit the extreme levels of fear seen at other important bottoms.



Now, the interesting twist: the QQV -- the implied volatility measurement on the QQQ, which is a proxy for the Nasdaq 100 -- hasn't registered anywhere near the kind of fear that would mark a bottom. In fact, the QQV has just started to move up, which corresponds with -- at last! -- a rising demand for QQQ puts. The weekly chart of the QQV is the single scariest thing I can point to -- that is, if I'm trying to talk you out of a bullish stance.



With the market churning around for the last 7 trading sessions, the question is who's going to capitulate first -- the remaining bulls and those nibbling ahead of the putative "war rally"; or the bears, who have been sniffing another impending market disaster.

To me, the burden of proof is squarely on the bulls. The spectacular flop yesterday following the rally during Colin Powell's U.N. presentation is yet another failure to claw back to the breakdown point from Friday, Jan.24th . So far, there hasn't really been too much for the bears to be scared of, while the bulls are clearly back on their heels.

It looks like long bets are going to get tested even more severely before a meaningful sentiment bottom is reached. The next stop on a break below SPX 840 is the 820 area. The move down to 820 should be a very quick one, when it happens. It's already overdue.

We should also keep in mind that the end-stage of a mid-term decline is often where the most price damage occurs. You can see in the dashboard below that the mid-term gauge has clicked down to 79 in its downtrend. We're heading now into the most dangerous part of the downtrend, where the selling can really accelerate.