just an fyi on a newsletter i got in e-mail
Yesterday was a good old-fashioned rip-roaring bullish day.
After a sharp morning sell-off -- which hit the stops of the
skittish short-term bulls, and emboldened the large
"I-Told-You-So" bearish contingent -- the market viciously
reversed course and ramped straight into the close.
This leaves us with "tails" down on the intraday charts, right at
the crucial 20 period moving averages. These moving averages are
important, simply because millions of traders world-wide look at
them. A tail below, and a strong close above, has many traders
seeing this action as very bullish.
It's also a very bullish thing for a market to get overbought,
and stay overbought. Technicians like to throw around the terms
"overbought" and "oversold" -- especially lately, as this has
been happening a lot -- and really there is nothing fancy about
this term. It means exactly what it sounds like. These refer to
markets that have experienced an abundance of buying or selling.
Back in the bear market, the selling waves would take the market
down quickly to oversold status, but the markets would just
continue to go down even from that point. Often this bear market
stretched the boundaries of technical analysis to the limits. I
vividly recall that the July 24th low was about as ridiculously
stretched to the downside as a market can get.
Now the markets are overbought, and every chart-watcher in the
world is expecting a retracement of the gains. Yet it's not
happening. Instead, we had a bullish breakout yesterday off that
morning pullback. Overbought is staying overbought, and that's a
very bullish development for more gains.
Another interesting bullish development is the Nasdaq is leading
the market to the upside. Yesterday the QQQ -- the popular index
proxy for the Nasdaq 100 -- staged an authentic intra-day
breakout to the upside, triggering a continuation buy signal on
our short-term timing models. The longer-term daily and weekly
models are actually on a major buy signals. So I jumped at the
chance to go long the QQQ for our options service for new
subscribers that don't have enough long exposure, even though the
markets are already extended to the upside.
The intermediate-term, daily uptrend is just too strong to
overcome here, and until proven otherwise, the bullish momentum
should just be trusted, not fought. Also, as long as bonds can't
even mount a rally, then the pullbacks in the stock market will
not amount to much -- and so far bonds can't manage to get off
the canvas. Even at the peak of yesterday's selling, bonds were
only up slightly. Bond futures (USZ2) remain the thing to watch
during the trading day.
Mr. VIX
I got an e-mail the other day addressed to "Mr. VIX", which was a
gentle way of ribbing me for relying so heavily on one technical
measurement of the market. It's true, I rely on the VIX, but
it's for a simple reason: it works. It always has, and it always
will. Because the VIX reflects the true nature of market
sentiment, based not on what people are saying, but on what they
are doing with their money.
The main reason the VIX works so well is because it is the only
major market trait that is anti-persistent. A few months ago, I
did a detailed discussion of this anti-persistency, and how the
Hurst exponent of the VIX is less than .50. This means that it
is a data series that is not correlated with trending movement.
It tends to reverse direction. Every other market trait -- such
as the price of the S&P 500 -- tends to trend strongly. This is
incredibly valuable information to have, and you can carve an
entire market timing strategy out of this anti-persistency.
The anti-persistent ebb and flow of the VIX -- marking the
advance and decline phases for the market -- allows some pretty
accurate market forecasting. If we are in a period of a high
VIX, such as now, then the odds strongly favor that we will enter
a period where the VIX moves lower. And a declining VIX is
strongly correlated with rising markets. A VIX declining from 50
-- as this recent market is doing -- has the potential to be
correlated with a very strongly rising market.
Single-Stock Futures, Again
Many people sensed my excitement about the coming launch of Single-Stock Futures.
The more you know about these very cool new trading instruments,
the more you are going to share my excitement.
But naturally at this point, people have an overwhelming number
of questions about how these will work, and what exactly they
are.
I'm urging you to get out in front of the launch of these
futures, as we're coming up quickly on November 8th. I predict
that the entire trading community will migrate to trading these
futures contracts within one year. There is absolutely no reason
to trade common stock once there is a futures contract available.
And get this: you will be able to trade Single-Stock Futures out
of your regular equity account. No special futures broker will
be necessary. This one fact alone is going to supercharge the
trading in Single-Stock Futures. They are also going to trade
electronically 23 1/2 hours per day.
This is where the action is going to be! |
