| | | An observation/IMO,
Many of the overbought and oversold indicators approach extreme readings but rarely get to the point where the systems would start to reverse positions. Steam builds up in the pot, so to speak, but gets let out before there's a reason to boil over or, worse, explode.
Looking at the combination of settings on multiple time frames within these SPY charts in different time frames show how often the pot starts to boil but then eases back down to a simmer (to continue with the cooking metaphor).
As long as this process continues, the chances of VIX "blowing up" and causing a short stampede appears to be small. The longer it takes for us to see a significant "black swan" pop up out of the blue, the more confident the "short VIX crowd" grows.
Even in the situation where we have a goldilocks economic environment of not too hot or too cold, at some point there will be a situation where it will be wise to "preserve capital" vs. "continued risk taking".
I believe it's wise not to call tops or bottoms in advance of the move but rather to look for the proper indicators to start lining up. Also, many get hurt at the very end of risk taking phase, as they will likely get caught being overconfident and overextended.
What all of this leads up to is a market that has essentially sustained itself through cannibalizing on itself, binging on cheap credit to finance trillions of dollars of stock buybacks, even as these same companies barely improved their productivity at all. I see lots of statements similar to this one. I'm sure there are quite a few companies that will fit this description but I'm not so sure that it's appropriate to paint the entire equity market with this same brush! |
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