Growing Sense of Danger...
The Dow closed higher today by 59 points despite economic data continuing its volatility.
Fundamentals
No doubt the recent economic data, including today's, have been volatile inclining in favor of bad news. However, despite the lackluster sales data today, US market still took off into the black after struggling for the first few initial hours. Market action today tells me that investors are slowly selling out of the market while the that has missed the whole quarter of profits is now stomping in. In a truly strong day supported by the professionals, bond yields usually rise across the board as these big investors reallocate from the safety of bonds back into equities. However, what we saw today is shorter term bond yields being stagnant and some even dropping! That's right, this means that investors are actually moving back into safety, which could account for why the market took such early pressure. Now as we look at the Total Equities Put Call Ratio at what options traders, which are mainly retail speculators, are doing, we saw a huge drop blow 0.7 in favor of call options trading! Yes, the herd truly is moving in strongly! What happens when the herd moves too strongly? The trend runs out. The last time total equities put call ratio took a nose dive below 0.7 after a significant multi-month rally was back in 19 Sep 2012. That led to a huge intermediate correction. This somehow coincides with my prediction that the market is due an intermediate correction as well... could this be the start?
Technicals
Once again the market finds itself at a crossroad, two paths lie ahead; a small and narrow road upwards and an easy and broad way downwards. Even though the Dow has made its second consecutive positive day this week so far, it has merely been trading within a sideways channel since the rally ran out of steam in mid March. Like I said last week, without a good intermediate correction, the market cannot move any further upwards without a growing sense of danger. The huge bearish divergence created last week continues to remain true and the dynamics stated in the fundamentals above reinforced that prediction. Odds now truly favors a move to downside for the intermediate term from here onwards.
For now, the Dow remains in a short term neutral trend within an intermediate and primary bull trend.
I also wrote a new tutorial on whether Do 80% of Options REALLY Expire Worthless. Check it out.
Fundamentals
No doubt the recent economic data, including today's, have been volatile inclining in favor of bad news. However, despite the lackluster sales data today, US market still took off into the black after struggling for the first few initial hours. Market action today tells me that investors are slowly selling out of the market while the that has missed the whole quarter of profits is now stomping in. In a truly strong day supported by the professionals, bond yields usually rise across the board as these big investors reallocate from the safety of bonds back into equities. However, what we saw today is shorter term bond yields being stagnant and some even dropping! That's right, this means that investors are actually moving back into safety, which could account for why the market took such early pressure. Now as we look at the Total Equities Put Call Ratio at what options traders, which are mainly retail speculators, are doing, we saw a huge drop blow 0.7 in favor of call options trading! Yes, the herd truly is moving in strongly! What happens when the herd moves too strongly? The trend runs out. The last time total equities put call ratio took a nose dive below 0.7 after a significant multi-month rally was back in 19 Sep 2012. That led to a huge intermediate correction. This somehow coincides with my prediction that the market is due an intermediate correction as well... could this be the start?
Technicals
Once again the market finds itself at a crossroad, two paths lie ahead; a small and narrow road upwards and an easy and broad way downwards. Even though the Dow has made its second consecutive positive day this week so far, it has merely been trading within a sideways channel since the rally ran out of steam in mid March. Like I said last week, without a good intermediate correction, the market cannot move any further upwards without a growing sense of danger. The huge bearish divergence created last week continues to remain true and the dynamics stated in the fundamentals above reinforced that prediction. Odds now truly favors a move to downside for the intermediate term from here onwards.
For now, the Dow remains in a short term neutral trend within an intermediate and primary bull trend.
I also wrote a new tutorial on whether Do 80% of Options REALLY Expire Worthless. Check it out.
posted by Jason Ng at 5:50 PM
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