10/2/2014 6:17:32 AM
Good morning Traders,
You'll notice yesterday's update in your inbox this morning. My apologies for not hitting the send button on our editor. Usually I get an email or two from clients reminding me. If you visited the site, it was posted there. Again, my apologies.
Wednesday's weakness on the 10/1 puts the market in a mid term sell. As we've been calling for - the 10/1 20 week cycle low is coming in. And if the market doesn't bounce and rally today, then the low will be right justified - which for all you cycle fans out there means the market is changing state into a bearish market. That being said, the level of fear in the market in the short term is approaching extremes:
This level of fear is the wall of worry I've been talking about.
Of all our indicators, there are some short, mid and longer term. The above is a shorter term indicator. Here's a mid term indicator:
The AAII data is pretty fast moving. I often compare it to the II data, which moves at 1/4 the speed. Either way, fear is building in the short and mid term.
This model is showing more potential energy for a bottom building - more so since 2012! So the key here is 'trending volatility' - there are several characteristics of a bearish move, and the worst is a trending volatility move. We're close to that state, which would take this market much deeper.
And finally, since oil is getting hit hard, we take a look at inventories. The OIL PUTS we recommended in our oil trader service - last time we looked they were up over 260%! I'm sure they're up quite a bit more now. But I think we're getting closer to a bottom. One piece of evidence is the oil inventory data, which has built to a level that normally results in a reversal in oil prices.
So where are we now? We are working our way into a short term low here that could result in a pretty strong year end rally. Once our system triggers a buy, we'll jump on it. So stay tuned!