Wednesday, September 16, 2009

Market Observations - Optimism and Fear

Below, I show a chart of the Russell 2000. This index has broken over the top its upper trend line in what looks like a parabolic throw over. At the same time VIX closed positive and has failed to close below support...this is a significant non-confirmation to the throw over prices that we are seeing in the indexes.

The fear and extreme optimism (92% bulls) are not painting a clean picture for the bulls. Clearly what is happening is that the bears are blowing up out of shorts and giving up and longs are over extending and pushing the cash reserves to near 0. This means there will be very few buyers when we start moving down...

I am looking for a this throw over to reach some sort of emotional extreme imminently. Clearly the diagonal that most have been watching is not playing out. The action today shortens the end of P2, in my opinion. Other patterns, including a diagonal, would likely last longer.

Keep in mind that this action is most definitely NOT bull market action. In bull markets, panic buying does not often occur...additionally, patterns allow for consolidation and testing. The only testing going on with this market is highs...this is representative of advanced countertrend type activity. Bears are at wits end and Bulls can't get in quick enough or risk missing the bull market.

I am imagining that this will also cause a spike in Gold and capitulation in the dollar...due to this impression, I have exited most of the dollar contracts that I bought when $DXY was 76.7.

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