Sign Up to Receive a Free Trial of the Daily Decision-PRO which includes Curt's options trades.
Closing Thoughts
For those who have been in this lovely game for awhile now (and by that I mean years, if not decades) the action of the market indices should look familiar.
That's because the market has traced out similar "Double-Bottom" or "W" patterns many, many times before.
The challenge for us players resides in the fact that there is also a historical precedent for the basing pattern to "fail" and for the market to keep dropping.
Some of my concerns are:
- The business TV shows are still full of "What should our viewers buy?" segments. I would be more comfortable if I was seeing a large number of "Where should our viewers hide their money?"
segments. We are just beginning to get some of these with talk of dividend plays, utility stocks, defensive stocks, etc.
- Sentiment is bearish but not extremely so. Some gauges have reached areas from which major market turns have occurred. Others though are not flashing green just yet. Take for example the Investor's Intelligence survey. Back on July 21st with the DJIA at 12724 their survey showed 46.2% Bulls and 21.5% Bears. As of yesterday the Bulls were still at 46.2% while the Bears had increased slightly to 23.7%. Over the same period the DJIA has fallen 1,733 points. Due to the survey's lag effect, the numbers for next week could paint a different picture, especially if the re-test of last week's lows "fails".
Now some positives:
- I have already heard a talking head or two advise their viewers that we are dangerously close to "Bear Market Territory" and that only a modest further decline will push the market past the
-20% "line" which delineates a "Bear". Such talk will likely increase negative sentiment which we would view as helpful.
- I have also seen television segments and read articles which have assumed a "There's No Hope", Greece will default, banks will fail, global growth will stall, etc. attitude. In this
situation: Gloom is good.
- The list of market metrics and historical research studies which indicate a generally bullish intermediate-term outlook is getting rather long. And we seem to be adding to the list nearly every day. The weight of the evidence certainly appears to favor the Bulls.
I could go on, but won't.
Summing up, my market tactics will key off of what I believe are the 2 most likely possibilities:
- The market successfully concludes its re-test of last weeks lows and begins a meaningful advance. (Gradually do some buying "now")
- The re-test fails and the market breaks to new lows. This pushes sentiment to extreme readings (such as the I.I. survey showing a big drop in Bulls and a big increase in Bears). This leads to a sharp reversal, perhaps triggered by a news event, and a substantial rally.
A third possibility is a break below last week's lows which leads to a replay of the September/October 2008 waterfall plunge. While I do not believe this case is likely to occur, it could. And thus we must all keep one eye on the exit.
Have a good one...
Curtis Bergquist
Options Manager: Daily Decision-PRO
S&P 500 - Last 12 Month
Remember, you are in control your email alerts! You can receive alerts for more than 25 free research report alerts including: The “10.0” Report, The Insiders Report, ETF Leaders Report, and The Focus List.
