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Market Sentiment At Its Lowest In 10 Months

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Potential Sell

Good morning Traders,

As the market vehicles tend to move in sync, we see a potential set up here as we go through our normal timing charts.

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Stocks approaching a sell and bonds looking to break out.

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The Dollar has been weakening, which has added to the buying in the Qs.

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Gold would be near a top in normal markets, but if we get a sell off, they’re breaking out.

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Oil has been trending lower, which is contrary to what you would expect with inventories shrinking and the dollar selling off. Even oil option writers are betting on upside. Momentum is setting up a bullish divergence.

And moving on too some sentiment indicators:

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This peaking suggests sideways action.

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And the VIX - a bet on volatility - is also setting up a potential top. No one can predict the future, but it’s easy to see storm clouds and that does increase the odds of rain.

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The barometer is not reflecting the bullish action in the market, which suggests a bearish divergence and market vulnerable to a sell off.

So as much as we have the potential for a sell off, if bonds reverse course and head lower, that will create more liquidity - similar to 1999 and that liquidity is seeking returns, so stocks will benefit.

It certainly is an interesting time to see the market narrow in leadership so much and a few stocks responsible for a significant amount of gains. I was actually reviewing some Low Periodic Power Law material to see if we’re setting up for a historic crash. I’m no quite there yet. But there are similarities with the pattern in the Qs.

If we do get a crash, I hate to say it, but I’m betting on more of a 1987 style crash, which will be faster than anything we’ve experienced in some time. A move lower like that sets the stage of breaking some markets. So the period after - the recovery - could also set up the next larger move lower. This is reminiscent to the March 2000 move lower in the Nasdaq, where in 3 weeks, the Nasdaq went from 5000 to 3200. Sure it recovered, but the recovery set the next stage for a move lower from 9/1/2000 to October 2002. The 87 crash was 3 weeks as well, taking the markets from 328 to 216. The difference between now and then is that then we didn’t have the Nasdaq. This time around, we have the crowd gathering into the same ETFs driving the same stocks higher. Ready to lose close to half that value in 3 weeks?

The key to responding will be speed. So after a price point is broken, we will move to a bearish stance. Until then, we’re long and patiently watching.

Regards,

www.stockbarometer.com

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