Monday, October 17, 2011

not much of a surprise today

Well, as I suggested in Friday's blog post, we got the correction I anticipated.   I hope you followed my suggestion to sell everything and put the cash under your mattress for the next 13 years :)

Today's action was pretty nasty which affected the entire market, in fact 1400 of the top (via market cap) 1500 stocks declined in price, which is roughly the same number we had on the first down day on the last three downward movements ...
9/1/2001 = 1335 decliners
9/19/2001 = 1290 decliners
9/28/2001 = 1404 decliners

The VIX, which some say is a measurement of fear in the market, closed at a very low level on Friday compared to its' near history (higher means more fear, lower means less) which put me on alert then that we were overbought and due for a correction.  I'm sure I wasn't the only person to see this.  Today it gained roughly 18% and is back up at a 'respectable' level, so we are 'less' overbought ... whatever that means.

Volume was light which is usually a good sign on a downward move (shows that there wasn't much conviction to the downward move from the people involved), BUT after such a strong upward move it doesn't surprise me that the bears are gunshy and as a result I don't hold much importance to this.  With that said, my gut tells me we may see more downside over the next two days, but that we are still moving up from here and won't revisit the lows again. Over the past few months as we have moved up and down in the channel we are in, volume has been quite strong on the first day of a trend change when the move was significant and mild on the moves that only retraced 50% or less.  Tomorrow will be important ... if the bulls reassert themselves we can continue up, but if they are asleep at the wheel, then the bears will start getting more gutsy and the downward momentum will continue.

Could this be a turning point to something larger or just a simple and healthy correction is a good question ... We really got away from ourselves over the past 2 weeks and so a 2% decline is really nothing to complain about.  I think this change in direction was expected and anticipated and when it came, everyone got out of their long positions quickly.

I did notice a number of times throughout the day attempts to rally, which tells me that there was definitely buying pressure ... just not enough to counter the selling that was going on.

I am still bullish with this market and entered a few long positions at times of strength (near the bottom today) which I am holding overnight, but I am a little skeptical since again we had such a maniacal move up over the past few weeks, we could reverse it quickly.  Mania's or 'irrational exuberance' are usually corrected quickly.  When things get out of whack too quickly ... the pros see it and try to profit from it which they obviously did today.

By the way, when I say that I am bullish ... that really means that my analysis is still showing a bullish bias, not that I am personally bullish.  I don't let my personal feelings enter into my purchasing decisions since the market will quickly let me know that my personal feelings really don't matter.

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