As equities struggle to find support at their February lows, various measures of breadth and sentiment recently printed extreme readings,favoring a bounce in equities. The 13-day EMA of the put/call ratio, for example, has been over 1.10 since early May, suggesting continued fear, desire to protect gains and outright bearish bets. This indicator reached these levels in October 2008 (as equities swooned) in the midst of much more severe economic conditions. The dollar also appears to be forming a short-term top; its reversal may lend support to a short-term uptrend in equities. Oversold foreign markets also appear to be settling into support zones.
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Monday, May 31, 2010
Wednesday, May 19, 2010
Short the bounce
As we believe a top has been reached in the rally since March 2009 (the top was achieved in late April), any bounce from today's deeply oversold environment will invite further shorting opportunities. The weekly charts in the major indices have started to break rising uptrend support. We suspect any bounce will be tepid.
Weak market breadth and high volatility support a short-term bounce. VIX has widened the gap from its EMA 34 (extreme gaps in the past have preceded market turns). The Put/Call ratio closed at its highest since November 2009 (while the equity markets were in the throes of capitulation), and its EMA 13 closed above 1.0 (again not seen since November 2009).
The dollar, which has been moving inversely to equities, appears to be forming a short-term top, another potentially bullish sign for stocks.
We plan to go short-term long with tight stops in preparation for a continuation of the downtrend, reversing to short for the intermediate-term when the expected bounce is exhausted.
Click here for the latest Market Tour on Stockcharts.com.
Weak market breadth and high volatility support a short-term bounce. VIX has widened the gap from its EMA 34 (extreme gaps in the past have preceded market turns). The Put/Call ratio closed at its highest since November 2009 (while the equity markets were in the throes of capitulation), and its EMA 13 closed above 1.0 (again not seen since November 2009).
The dollar, which has been moving inversely to equities, appears to be forming a short-term top, another potentially bullish sign for stocks.
We plan to go short-term long with tight stops in preparation for a continuation of the downtrend, reversing to short for the intermediate-term when the expected bounce is exhausted.
Click here for the latest Market Tour on Stockcharts.com.
Monday, May 10, 2010
Neutral bias
Market breadth was so excessively weak following Friday's sell-off, that even without the events in Europe, we would have expected a bounce in the near-term. Development in Europe accelerated that bounce in a convincing way. We expect the market to retrace a portion of this rise before moving higher.
Click here for the updated Market Tour.
Click here for the updated Market Tour.
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