Oct 8, 2010

Short term: 3 yellow, 1 red – overbought. nothing new
Int term: 2 green, 2 yellow – uptrend continues. nothing new
Stock targets: 77% swimming, 16% neutral, 7% sinking

It looks like there is now some stability in extremis. The number of newly deteriorating stock charts is now balancing the number of newly improving stock charts. At these extremes of one-sided opinion; what this means is that the market is moving from bullish to complacent about the underlying macro scenario (declining dollar, Fed easing and monetizing debt, etc) that has driven the recent rally.

You can see that in three “volatility” charts – VIX (the current month); VXX – a short-term VIX futures ETN, and VXZ (a medium-term VIX futures ETN). DO NOT buy any of these under any circumstances if you are a retail investor. They are a derivatives fraud for anyone but a hedge fund.

Now on the low end and heading into complacency — but nowhere near extreme enough to go contrarian

Impossible to separate out what is permanent value decay from VIX changes – but it’s easy to see how those who have been short-term short have been slaughtered over the last 2 years.

Despite the market action, longer dated VIX futures are still pricing in some volatility.

A very weird mix for a completely manipulated market. An Alice in Wonderland bear market. Substitute recovery too. Works just as well.

“I’m sure I’ll take you with pleasure!” the Queen said. “Two pence a week, and a bear market every other day.”
Alice couldn’t help laughing, as she said, “I don’t want you to hire ME – and I don’t care for a bear market.”
“It’s a very good bear market,” said the Queen.
“Well, I don’t want any TO-DAY, at any rate.”
“You couldn’t have it if you DID want it,” the Queen said. “The rule is, bear market to-morrow and bear market yesterday – but never bear market to-day.”
“It MUST come sometimes to “bear market to-day,”” Alice objected.
“No, it can’t,” said the Queen. “It’s bear market every OTHER day: to-day isn’t any OTHER day, you know.”
“I don’t understand you,” said Alice. “It’s dreadfully confusing!”


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