Ahh… The Smell Of Capitulation & Beartards

Well I (volar) have been saying, “wait for it” for 6 weeks now. And I think we are “basically” there, or 3.6MM emini volume, 10M equity puts would hint at that.

This week I pulled the guns out. I am showing you stuff that I have not shown before. Some of this data goes back pre-1998 (daily and weekly); this data is not cheap, nor is my math, so you are welcome in advance 😉

Let’s start off with a treat for the leaches.

Now for the troops, here is the quality hooch. We are talking single malt speyside, 18+, custom Aberlour. Maybe even Glenfarclas 25 or a Distiller’s edition highland Dalwhinnie…

As you can see everybody is thinking something will happen 😉 Which means it probably won’t happen (just yet).

I am going to give you a bunch of charts, with little explanation. If you need explanation, ask.

Lets talk moneyflow and capitulation.

First I want to show you what retail retards are doing… of course adding money at the highs and selling at the lows…

I have a feeling by month end this will look even more apparent. Folks, sorry, but distribution does not occur when the “boyz” are buying and retail is selling. Given the volume we had yesterday, I am fairly sure this will look even more apparent in hindsight when we get yesterday’s data. Of course retail is always right 😉

Speaking of what money flow is doing… Wow shorts are amok in NQ since MAY 31. Remember how much I have talked about short interest divergence. Heck that was the primary reason I exited my last swing long on new highs (that an no call buying). Well I am sure two weeks later and a few handles down there is nearly record short techs…. not bearish IMO.

Doubt this time will be different.

Today’s volume means much. Likely a sign of capitulation.

Remember for every retail seller there was a Goldman and Volar buyer 😉

And put volume was no joke either.

Yes we have been higher, but 10MM in the middle of June works for me. Furthermore, the CBOE index put volume was 2.5M, which is quite extreme. Also notice that put volume usualy peaks after the market bottoms (go figure).

Here is the total all exchanges sum of calls/ sum of puts. Not bearish…

Also look at the CBOE Calls/Puts (Equity). This is adjusted data.

Wow retail retards are panicking. In fact The CBOE Equity P/C on a daily basis has only been higher 8 days since 2003, 6 of which were in 2008. Go look up 5/14/04 and 8/13/04 and you will find the other 2x this happened while in a bull market. Moreover, almost every exchange had a P/C > 1 yesterday (a first to my knowledge).

Here is another look at a CBOE momo ratio with more data.

Ok so capitulation is likely evident here.

Also if one runs the stats from last Friday’s weekly close they will find that we have a 75% chance of closing higher by week end. Moreover, this data includes bear markets. Only 19x has this happened since 1950, and NEVER in June.

AND one more stat. Since 1990, if the DOW is > 52 week average and we close down 6 weeks in a row, we have an 80% chance (4/5 odds) of closing 1% higher in one month. Or more specifically: Next-month returns since 1900 when DOW loses 6wks in a row and is above 52wk avg: +2.9%, -1.7%, +2.2%, +3.7%, +4.5%.

So you get my drift, probabilities are much higher. Did I not say last week we had huge odds of a VIX buy signal? LINK 2 POST

And here is one quick chart on breadth to put things into perspective as well.

Very extreme here if you ask me…

Now on to the sentiment survey data.

First I broke down and added Consensus Inc. to my index. I have decided that I wanted to backtest data to 1998. As for market vane, I have been there and done that- did not get much out of it. So you are going to get the 6 surveys most of the time, but special times, like today, you get real historical data (4 surveys) going back to 1998. Here is the Hulbert, Consensus, Investor’s Intelligence, and AAII. So normally you will see 6 surveys combined, but that data is as of August 2006 (TSP and NAAIM).

Details aside here are the charts.

Raw index:

Clearly we are at levels only seen few times this decade.

Now I always suggest to look at the rate of change.

This just shows you how fast sentiment dropped. So we should at least see 100 points from the low, worst case. Also notice how within about 6 weeks there was a clear sell signal to take profit.

This next chart is all 6 surveys (the regular one I show you). Clearly evident here as well that traders are bearish.

The TSP and NAAIM surveys are very very low. TSP had 58% bears and NAAIM was 28% net long (which is considered leveraged short).

And as you all know AAII is not my favorite survey, but here is a convincing chart- even if we are in a bear market- that says BTD.

Finally I will end here with the Hulbert daily sentiment momo

Bottom line: if we are not there as of 6/15 we will be there by 6/18 I would presume. Again to reiterate the probabilities, (a) Next-month returns since 1900 when DOW loses 6wks in a row and is above 52wk avg: +2.9%, -1.7%, +2.2%, +3.7%, +4.5%; (B) see my last post on the odds of a VIX buy signal this week. So we may well be in a bear market, and we may well even have a crash, but it wont happen until we have a decent bounce.

Good luck trading,

-Volar

*** PS I will do a special post on soybeans (yup not joking) sometime by Friday.