Monday, 20 June 2011

It is still " Sell the Rally".

Today was a double POMO day. Approx. US$ 10 Billion was pumped in the market but all S&P 500 has to show is only a rise of less than 7 handles. Not impressive at all.  One more thing to look for, S&P up for 3 days in a row but volume down 2 days in a row.  This is called price volume negative divergence and is normally a short sell set up.

I am not buying in the rally yet  for two reasons.  For one, I expect a lower low than the March low and second, the fear factor (VOX) has not yet reached the high 20s where we can see some panic. In fact at 3 pm, the put call ratio was .88. Means there are more calls than puts and people have reached the conclusion that the bottom is in.

I keep talking of the fear factor because stock market is ruled by greed and fear. Not by news, not by economics. In the past with SPX pullback of 10% or so, the VOX was on an average in the range of 28 +. By that reckoning, we have still some more way to go.

Stock market corrections are like quick sand. They advance two steps lower and rebound one step back, so that the fear factor does not build up too quickly. These countertrend rallies keep everyone interested and invested till such time the capital is gone.

Buying stocks in the face of fear and selling it in the face of greed is the only way to make money in stock market. I am not convinced that I am seeing that fear yet.

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