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Sentiment Plunges Further Still.....Price Action Weak....

It's really amazing how fear ramps so much faster than froth ever could. Put a good scare in to folks and they run for the hills faster than you can blink your eyes or for that matter, hit the sell button. Trust won't ever come back the way it had before either. It's been too long with the market going nowhere to down. Very few if any strong, sustained rallies and after a while it becomes a belief that they'll never come any more thus of course they will but it won't be easy to turn people bullish any longer. They're scared to take any real chances since they've been burned repeatedly over the past many, many months. So naturally fear took a turn down further after the rough action from last week. Two weeks back we were at minus 2.2% on the Investors Intelligence bull/bear spread. Last week it went flat at 0% but now we're back down and this time it's minus 4.2%. The lowest reading in quite a long time and the third week at or below zero. Short interest as well is at record highs. Pessimism is on the rise and that is music to the ears of those bulls who are left out there but still not necessarily all it will take to possibly get back to those old highs. Since fundamentals are really poor especially globally (see VUE Global ETF chart below) and seemingly only getting worse as evidenced by the China PMI hitting a 6.5 year low last night, it's sentiment that's saving the bulls from a full blown bear market. That will likely have to wait until 2016 to get rocking in a much more sustainable way. Bull markets take a long time to end and sentiment is such that another test back up is quite likely but definitely no guarantee. All of that said, the market whipsaw to nowhere continues but with a down slanting slope in price. Sentiment should blast up at some point soon but the market needs a catalyst we don't see at the moment to get it started. It'll come out of nowhere but it hasn't shown itself quite yet. There are so many shorts in the market the rally should be powerful but timing it won't be easy. Our rising support line off the year 2009 lows comes in near the 1,850 area so we can't rule out a test at some point.

S&P500 Weekly Chart

In the end it's all about price action and of course, how those oscillators react to it. As price has drifted down the oscillators have acted in a way that says the selling isn't for real which is why you just don't want to jump right in to the long side and let it ride. Oscillators have moved down with price equally in my eyes thus it tells me that before I buy in to the pessimism that's out there, it's safest to do so when we get the proper combination of bottoming sticks along with oversold conditions. If we throw in a positive divergence that wouldn't hurt but we can and probably should bottom before testing down to the old low on the Sp at 1867. While pessimism is screaming upward please remember how long it took for the market to fall even with all the froth that was out there. That said, you can try to anticipate a bottom but it's always best to get a gap down that hollows at the end of the day with strong volume meaning on balance buyers once we gap down at the open. Bigger volume tells you some big money was involved and thus makes it safer to test the waters. Nothing has been nor will it be easy from here on in and possibly so for a year or two as the topping process bigger picture takes place. Again, a new high or near equal high is quite possible but of course, no guarantee. The right catalyst will cause a massive short covering rally which unto itself can bring us up to the old highs. That's how strong the short interest currently is. All of that said, taking nothing for granted regarding price just because of the pessimism that's out there. Trying to front run the rally can be hazardous to your pocket. Let the right combination take hold on those oscillators and candle sticks and then move in. Slow and easy all the way around. Have those constant chats with your pointer finger.

Next, lets take a look at some of the recent leading sectors. Namely the Biotech's which led for a good while but are turning down hard and fast this week as the market loses another leadership area. So far this week the sector is down 6.7% seen below:

Biotech ETF IBB Weekly Chart

Next lets look at the Transports which stalled out last week at our 6 Month Downtrend Line area:

Dow Jones Transportation Average Daily Chart

Finally lets take look at the Industrials which continue to find headwinds overseas:

Industrial Select Sector SPDR Daily Chart

Thus to sum...we continue to see a lack of leadership in key groups which keeps us at www.TheInformedTrader.com in a defensive posture as we continue to give the market room and time to settle out.

 


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