Friday, October 24, 2014

Another V Bottom

The market continues its past V bottom tendencies.  This is quite the rip higher over a week.  We've gone up 140 S&P points from bottom to top over 6 trading sessions.   That is 7%.  Market continues to confound bears, including me, with its relentless bounces off oversold conditions.  We've gone through most of the resistance barriers, such as SPX 1880, 1905, and 1935.  Now the next area of resistance is 1960 to 1970, which is an extremely strong area of resistance, as that is where we last rallied on the Fed dovish minutes before starting to plummet.

One thing that is different about this V bottom was that many retail traders were actually bullish while buying this dip, which is a bit unusual.  Usually retail gets scared by these dips, but they've seen these V bottoms so many times that they felt like this was going to be just another one.  And they were right.  To me, retail feeling confident buying dips is a warning sign that the market is complacent.  The AAII sentiment numbers were quite bullish for this week, which syncs with the anecdotal evidence I see among investors.  I know that sounds crazy when you see the VIX spike to over 30, but it was hedge funds that were caught off guard and reducing risk all at the same time that caused that, not a general sense of panic and fear.

The FOMC meeting is next Wednesday, and the market should be well protected from any meaningful downside till then.  It is rare to see the market fall apart right before a FOMC meeting where Yellen is expected to be dovish because the S&P went down.  Yes, I am being serious.  The Fed are stock jockeys, and take their biggest economic cues from the stock market.

Probably grind higher into SPX 1960-1970 area by the time FOMC Wednesday comes around.  Any minor downdrafts on Ebola news is a buying opportunity.

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