Cat More Dead Than Expected...
The dead cat bounce happened right after the occurrence of the dragon tail formation I mentioned last week, right on the dot. However, the cat really looks more dead than expected and the bounce has not been as strong as most people, myself included, have previously expected. This was also why I mentioned in last week's report that:
"...it would probably be already to late to catch on it for any significant reward vs the risk that you are taking because when the dead cat bounce is done, the market will turn around so hard that you may not have time to react to it and exit your call options or long positions profitably."
The thing about a dead cat bounce within such a strong bearish framework is that because it is so bearish inclined, it could actually be too short to be profitable unless you are an extremely nimble trader. This is why most professionals take such dead cat bounces for put options accumulation such that even if the dead cat bounce ends prematurely, it will be a pleasant surprise instead. I continue to see this area to be an area of struggle as this continues to be an area in which neither bulls nor bears have attractive entries. In fact, today's trading volume took a dive and closed the second lowest volume for the month. Internals are also divided as investors returned to bonds, taking bond yields lower across the board like all real bearish days but options traders took total equities put call ratio down abit in favor of call options trading. So, this continues to be a confusing area for most people. In fact, I won't also be taking strong positions around this area but to be patient to see how this situation unfolds so that I can ride on the next leg.
Market Crash Timer: RED
For now, the market turns a short term neutral trend within an intermediate bear trend and primary neutral trend.
"...it would probably be already to late to catch on it for any significant reward vs the risk that you are taking because when the dead cat bounce is done, the market will turn around so hard that you may not have time to react to it and exit your call options or long positions profitably."
The thing about a dead cat bounce within such a strong bearish framework is that because it is so bearish inclined, it could actually be too short to be profitable unless you are an extremely nimble trader. This is why most professionals take such dead cat bounces for put options accumulation such that even if the dead cat bounce ends prematurely, it will be a pleasant surprise instead. I continue to see this area to be an area of struggle as this continues to be an area in which neither bulls nor bears have attractive entries. In fact, today's trading volume took a dive and closed the second lowest volume for the month. Internals are also divided as investors returned to bonds, taking bond yields lower across the board like all real bearish days but options traders took total equities put call ratio down abit in favor of call options trading. So, this continues to be a confusing area for most people. In fact, I won't also be taking strong positions around this area but to be patient to see how this situation unfolds so that I can ride on the next leg.
Market Crash Timer: RED
For now, the market turns a short term neutral trend within an intermediate bear trend and primary neutral trend.
posted by Jason Ng at 4:54 PM
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