Today's action was definitely not what I expected, since
I figured we'd at least continue to close in the green
for one day. But that was not to be the case. The good
news is that today certainly brought out more bears and
more panic than yesterday did. Heck, my mother finally
What really caught my eye today was that the Investors
Intelligence weekly survey chimed in with a massive move
down in bulls. The bulls are now at 31.5%, which is the
lowest reading since we saw 29.4% in late August/early
September 2010. I realize that was a long time ago --
five years! -- but it turned out to be quite a low in the
Of course, that coincided with the end of the volatility
we'd seen since the flash crash in May 2010, and that
wild summer when we first realized Greece was a problem.
The main difference once again is that the bears are
nowhere near where they were then. Back then the bears
had soared up to 37.7%. Now they are relatively high at
22.9%, but they ought to be higher by now.
The bears were last here in July 2013. I believe what has
happened is that everyone has become accustomed to buying
the dip because the Fed or some other central bank will
come in and save us. In the old days, selling just
exhausted itself and slowly buyers showed up. Now
everyone just waits for some announcement from a central
What we should watch in the next few days is the number
of stocks making new lows. We find ourselves right now at
the same low as we had yesterday on the S&P, and a new
closing low, with far fewer stocks making new lows.
Yesterday we saw well over 1300 new lows, whereas today
we saw 250 new lows. If this number continues to
contract, it tells us the selling is drying up.
All the same indicators that were in place yesterday for
an oversold rally are still there. But the process is
also still ahead of us. The process still means
volatility is not going away. It means we should continue
to expect plenty of ups and downs. Therefore, that's
still the pattern I expect to unfold in the coming
To offset my mother's phone call (which is bullish) is
the fact that I leave on vacation Wednesday (bearish).
The next Letter will be on Labor Day, Sept. 7.
Again, I see no reason to rush into anything until the
market settles down. If you want to play for a rally,
then the indexes should be your focus.
The McClellan Summation Index continues downward, but the
"what if" that tells us how oversold the market is
remains in oversold territory, since it will now take a
net differential of +5000 advancers minus decliners on
the NYSE to halt this indicator's decline.
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People continue to ask me about oil and U.S. Oil
Fund (USO), an ETF to be long the commodity, and I
continue to believe I will not be able to identify a
bottom there until we see a prolonged basing in the
chart. If we do a measured target, we can get a target of
$11 to $12 on USO, so I would have to say at the very
least it's getting too late to sell or be short.
Tiffany (TIF) is oversold enough to have a bounce,
but I think if it can even get close to $88-$90, I'd be a
seller. And if it breaks under these recent lows, it's
got a target of $70 coming its way. I like to bottom-
fish, but this one doesn't do it for me.
CurrencyShares Swiss Franc Trust (FXF) is an ETF
to be long the Swiss franc vs. the dollar. Until it
breaks out over $106 to $107, it remains in a trading
range, but I must say I wonder if this is a rectangle
pattern, which would ultimately be bullish if it breaks
out. For now, I'll call it a trading range between $98
and $107, but I now have my eye on it, especially since I
suspect there is at least another attempt at the high
And this isn't a recent phenomenon.
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