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Fear Sets In

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:

Equity Put/Call Ratio Chart

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:

AAII % Bulls Chart

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.

Stock Barometer Oscillator III Model Chart

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.

US Oil Inventories versus USO Chart

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!

Regards,

 

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