Much to Discuss...............
We have finally had a short term break in the market, so what next?
This is a daily chart and as you can see even though we had an ugly day yesterday, and many bears might be celebrating, we have just retraced back to the trendline. Reviewing the COT report this week did not shed much light on things. Commercials were buyers in some indexes and sellers in others. The Naz in particular has the most bearish Commercials position.
The commercials in that market were the ones that tipped of the crash back in late 2007. However, in reviewing the track record of commercial buying and selling in the NAZ alone, it has not been a great harbinger of things to come, way less accurate than the other markets. As a result, it is not prudent to base a whole market call on what they alone are doing.
The chart above does have a green arrow on it a few days back which is one of the Vix buy into decline signals that I watch. I do not trade these but use them as just an indicator of when volatility swings are telling us we could be in a short term high or low. They are generally early like this one is. There are a couple other things I look at that will not be revealed in this forum, but the summary is that they are saying at this point to look for "short term" buy signals.
What does all this mean? I think we have to look to buy this dip from a short term perspective but only using whatever buy techniques you might use. I personally am not just going to buy into the weakness without some short term show of strength returning first. We are at a critical level in price, if we move sideways here then break down I think the party is over. We are long overdue for some type of retracement, this has been a crowded trade with the whole world in it. At the very least the tree needs to be shaken a bit.
As with all other retracements in trends, they all look the same when they happen, even the ones that wind up reversing the trend. We can never know in advance which ones will hold the trend and which ones will not. As a result, you just have to play them with proper risk management so when the trend changers come around, it is just one small loss and you move on.
This is not a spot for a major long term commitment from a retirement account standpoint in my opinion. It is a short term trading opportunity. I expect any bounce from here to generate a bigger picture sell signal. Also I caution people not to make stock market judgements based on what they view the overall economy is doing. These two things can diverge substantially from each other for long periods of time as we have seen this year.