Express Sentiment Update

I hope everyone enjoyed a wonderful and relaxing Independence Day weekend. I for one was laboring pretty much all the way through it and hope to be able to present something extremely cool sometime tomorrow. Which is the reason why I only have time for a super fast sentiment update tonight – here we go:

Market makers delivered a nasty rope-a-dope to the bears on Friday just ahead of the close. Despite the fact that the tape was steadily bubbling higher Mr. VIX suddenly ramped up by almost one handle, thus safely closing inside its 2.0 Bollinger. Which meant no immediate VIX sell signal possibility and thus the door remains open for a continuation of the current short squeeze. It’s not a necessity but the odds of a down correction have been greatly diminished.
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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I regret posting this SPXA50:SPXA200 ratio chart a bit late – but then again I don’t feel so bad as I was pretty adamant about the possibility of a nasty reversal over a week ago. Anyway, there was a distinct divergence at the bottom – that spike up now is very bullish and may lead us to new highs over the medium term.

Remember this chart? I had postulated that a drop through the 70% mark was medium to long term bearish given that we would not push above it again, even if equities reversed higher. Well – bad news for the grizzlies – because that’s exactly what has happened. As you can see it is a first for the past five years – usually a drop below the 70% mark enjoyed at least several months of follow through. Not this time and not on Bennie’s watch.

My JNK:TLT ratio chart also painted a divergence and then sliced through that diagonal resistance line that’s been keeping it in the gutter for months now. Thus far it remains supportive of this rally and unless we see a rapid change here tomorrow I expect this to lead us higher.

Bottom Line:

A week ago the long term bullish case was definitely in question and the long term bearish case started to look like it may gain traction. However, at this stage both scenarios are back on the table with similar odds. The next week or two will be extremely important in that it will bestow us with important clues that will make the case for either a long term bullish or bearish outlook. At this stage – today – there are no clear medium term odds supporting either which is why I am going to watch this tape very carefully and take only selected entries. The pop from the bottom (along with the drop from the top) was probably our money shot for this summer – it won’t be this easy going forward.

My preference would be to see a short squeeze melt-up to new highs with degrading momentum and market internals. That was my proposed scenario earlier last month and if it happens it would be a great opportunity to sell the rip. But let’s not get ahead of ourselves – if we continue to see days like last Friday then I would not want to touch any short positions with a ten foot pole.

As they old saying goes – don’t step in front of a speeding train.

Cheers,

Mole