Tuesday 27 March 2012

Dumb Money Still Chasing Stocks.

In the good old days or normal market behavior, I would have said today was a bearish reversal day. But now-a-days TA does not work so well when it comes to bearish prognosis, so I am little careful to say anything bearish. It might offend Bernanke. We cannot fight the Fed after all.  Although per cycle analysis, the last week of the March is supposed to be little weak, the 1st day of week has already covered for the rest and any selling is just to take out the overbought conditions.

After a free fall, VIX recovered somewhat today.
As you can see in the 5 minute chart, it was up for most part of the day while equities dived down much later.
On a daily chart, it looks like VIX has made a bottom.
While SPX has made higher high, VIX has not made a lower low. But I can tell you, this is temporary.  The lowest for VIX so far was 9 or so. I think that low will be broken.

Also up throughout the day were the US Treasuries.
TLT 5 minute chart is bullish. In fact TLT has been going up for a while equities are on a tear. Makes you go hmmm.

Also up was the US $ while AUD sold off.  

All these give the feeling that we might get that 2-3% sell off we are waiting for before the blow off the top rally.  Possibly today was the beginning.  But it is not time to go short yet.  As per Guy Lerner’s Dumb Money Indicator, as long as the indicator stays above the upper band, prices should continue to go higher.

This is consistent with what I have been writing all along that as of now dips are buying opportunity provided you know what you are doing and are ready to jump ship very quickly should it start to sink.

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  1. what #VIX must to be to confirm downtrend of the market?

    1. I am not sure I understand the question. A trend change does not depend on VIX. VIX is just a fear indicator, kind of derivative created by CBOE based on the call and put ratio. When trend is up, people are less afraid and they do not buy puts. VIX goes down. If I have to guess your question, I would say that when VIX is below 26 and falling, market is trending up. When VIX is above 26 and rising, market is trending down. But this is not a good measurement.