I made mention of Elliot Wave International's Robert Prechter, even though I personally don't follow Elliot Wave Theory (as I notice many practitioners son't agree on the count and they always have the fall back "Alternate Count", like saying the day will be partly cloudy so if it rains you are right, it if doesn't you are right.
There were also two Hindenburg Omens which generate a lot of talk, but we've seen numerous clusters and while I don't doubt they are a condition that precedes a bear market, I do not believe that they are in and of themselves a harbinger of a bear market.
In other words, there are too many people bearish right now and that includes even retail. Since I've had an intense interest in the psychology of bear markets and how investors that made a killing on the way up so often lose it all on the way down, a member sent me an article that touched on some of this.
NASDAQ Market Timers represented by Halbert NASDAQ NewsletterSentiment Index is interesting as a contrairian indicator. Since the Sept. 19th high, HNNSI has declined 75.5 percentage points from a net long 68.8 to a slightly short positioning of negative -6.7% so the typical "Buy the Dip" crowd, is not in fact buying the dip and this on an approximate -2.85% decline.
What I found interesting was the same indicator back at the Tech Bubble top of March 10th saw a n 18% decline over the next 3 weeks and during that period HNNSI actually rose, even though the -18% was 2% away from a media's definition of a bear market, the longs saw it as a buying opportunity and from there, it's easy to see how small bear market counter trend rallies can keep their sentiment bullish as a new low is made which they then swear they'll exit the position once price reaches the area in which they entered long, of course it never does, but each bear market rally gives them hope that "this time the market will get to my entry", even though the market knows nothing about your entry and as easy as that, you can understand psychologically how people lose it all in a bear market. After 5+ years of one scenario, it can be difficult to adjust to a totally new scenario, in fact most don't believe it's possible, that's the "New Normal" crowd or the "F_E_D has our back" crowd, both are desperately wrong as history has proven over multiple centuries and all kinds of bubbles.
Last Friday I was thinking about the number of bear market calls and uneasy, but I wasn't thinking of that in regard to the post-window dressing/post Q3 bounce which it seems we are well on our way toward making a reality, although looking at the bigger picture, I believe that sentiment does have something to do with the fact the market looks ready for a bounce , yet this doesn't change any of the bearish realities of the market, just perceptions of when and where. Looking at year to date data, I think it's not hard to make a case for a bear market right now especially as the Russell 2000 leads and is negative on a year to date basis as well as a 2014 basis.
Now the specifics...
IT doesn't take a candlestick charting guru to see today's closing candles were all bullish reversal candles from the SPY's Hammer, the QQQ's long-legged Harami reversal, or the IWM's bullish Thrusting candle RIGHT AT THE COMPLEX H&S TOP'S NECKLINE!
Take the closes as well, after the initial decline the SPX managed to close perfectly at unchanged on the day. The NASDAQ 1000 pretty close at a +0.03% gain, the Dow just as close at a -0.02% loss and the IWM putting in an impressive, +1.01% gain on the day, bouncing off support that equals the break of a major year long top!
Today was the R2K's best day in 6 WEEKS! What's that tell you about the late day signals we saw yesterday prompting this post Position Management & Trade IDea : QQQ/IWM in which the long term SRTY long was closed as well as 3x short QQQ, SQQQ long and replaced with 3x long IWM, URTY and 3x long QQQ, TQQQ yesterday. For the IWM repositioning, the timing doesn't get much better than that so we were out of SRTY and in a 3x long IWM the same day it had its best day in 6 weeks.
Last night's Daily Wrap breadth analysis, Sector performance and Dominant Price/Volume Relationship, compared to yesterday's market performance, were spot on today.
As for today's internals, the Dominant Price/Volume Relationship of the component stocks of the major averages was split, the Dow came in with 16 at Close Down/ Volume Down which I call, "Carry On" as there's no strong 1-day implication for the next trading day. However the NDX at 41, the R2K at 1245 and SPX at 205 all came in at Close Up/Volume Down, suggesting a 1-day overbought condition in which the next day usually closes down.
This could indeed be the widening of the base I have mentioned and would prefer to see as I don't think much will happen with tomorrow's Op-Ex max-pain pin, but we also have Non-Farm Payrolls at 8:30, so however they come in, HFT's can set the early tone and interpretation of the data series no matter what it actually is as they can move pre-market futures as the market is all about sentiment, not actual value or data.
As for the S&P Sectors, you saw in last night's post what the 5, 10 and 21 day averages were, not good at all, but also helpful for the oversold condition the market can bounce off even though on a price basis we are not even close to oversold, but on a breadth and sentiment basis, we are right there.
Three of 9 closed green today with Consumer Discretionary leading at a +.46% gain and Energy lagging at a -.52% loss.
As for the Morningstar Industry/Sub-Industry groups, 149 0f 238 closed GREEN, yes, GREEN, a huge change in recent character supporting the bounce concept from last Friday that we already took action on yesterday, there's still time at the right place to get involved.
Our main breadth indicators were essentially as flat as they could possibly be today, another significant short term change in character.
Leading Indicators looked like this...
Most of all, 3C is giving the strongest signals.
For an overview...
Although we put in strong additional positive divergences today such as the SPY 5 min...
However short term...
We have significant divergences, time to build more on the basing area and are already set with trades as well as having preserved gains in SRTY and to some extent, SQQ.
We have Non-Farm Payrolls tomorrow, one of the biggest data points on the week, but early knee jerk responses could set the initial tone which may help establish a larger base. We also have the typical op-ex max pain pin that should last until about 2 p.m. As I said this morning, if we didn't lift off higher today which IWM did and how about MCP, but the rest of the market didn't, then I wouldn't expect anything to start Friday during the op-ex pin, maybe after 2 p.m. when the pin is released, but I rather suspect most of the action will come early next week and then we'll transition back to SRTY/SQQQ as well as any other shorts that allow us a nice tactical entry at lower risk and better prices while this bounce is under way.
I'm off for Georgia, but I'll be covering the market all day tomorrow. Have a great night.
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