We saw a minor shift in sentiment today. As I noted
yesterday, everyone was rushing to buy the dip as if they
might never get another one; today they were rushing in
as well, only the dip did not have the kind of follow-
through they are used to. In the past, a down open that
got bought would have seen the shorts run for cover so
fast that the S&P would have been up 10 or more
points on the move. Today it barely got to green before
turning back down.
But you see, this is good news. It is good news because
if you keep saving the market, you never get a proper
cleanout. A proper cleanout -- such as we had in October
-- can launch a rally that lasts longer than a week or
two and one that can travel more than a few percent. But
when no one sells because they expect higher prices to
resume, then there is no reason to chase them up, is
there? When everyone already owns stocks, who is left to
So if you are bullish, what you don't want to see is
another save. These saves, as you can see from the action
since Thanksgiving, get us short, sharp 3% to 4% rallies
and then they give 'em right back.
As long as we're on the topic of sentiment, the put/call
ratio for the VIX was 20% today. That's an awful lot of
folks betting on a higher VIX and a lower stock market.
For the past several years, this indicator has been
almost like a Holy Grail in the short term. When too many
have loaded the boat with calls on the VIX, the market
has done the contrarian thing and rallied, usually
sharply, taking the VIX down hard. It worked like a charm
in 2012, 2013 and even for the first half of 2014. Yet
something changed in the second half of 2014.
In mid-September, we had a low VIX reading and there was
no bounce. In late September, we had back-to-back days
with low readings and the market went down anyway. We did
not have another such reading until the day after
Christmas, and the next day the S&P rallied two points
and that was it, down we went. For now, I will figure
that we should get a short-term rally out of it. That is
more based on the fact that the S&P has been down four
days in a row already, and aside from the groups that
have been hit hard, there was not much selling in the
But I don't think the rally -- if we do get it -- will
last very long. I do not think we have any sufficient
The only thing I saw that was worth discussing was that
the transports got to the 8600 support or $155 on the
iShares Transportation Average ETF (IYT) and
bounced. If it rallies and gets to $158 and dies, I would
consider that negative for the transports. If it can get
all the way to $160, then it's possible it's not as
Think of this latest decline in the transports a bit like
a race. The thick, flat support line is the starting
line. It took only three days to get to the line; in
other words, it ran its heart out getting there. If it
broke the line now, chances are it would be exhausted and
not be able to go very far (i.e., more like a false
breakdown). If it now rests by rallying back to $158 and
then turns down, it's as if it is getting a running start
to cross that line, thus it has more energy to do so,
thus a break of that line is more likely to stick.
If it makes it all the way to $160, it has the chance
that, by the time it falls to $155 again, it tires out.
So the bottom line is I think we can have a rally off
these support zones, but I still don't see the kind of
setup that makes me feel like this is a buying
opportunity not to be missed.
I was asked if Apple (AAPL) is a buy because it
did not take out the mid-March lows. Quite frankly,
considering I don't love the market right now, I'm not so
sure I trust AAPL, but if you want to trade it, then $122
is the stop and the target is that downtrend line near
$127-$128. The best news I can offer for AAPL is that
with the moves in biotech and the semis, everyone seems
to have taken their eyes off this one for now.
The put/call ratio's 10-day moving average is still
heading down, but it has been off by a few days lately.
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Mylan (MYL) has had a nice run and a decent
pullback. My only problem with the chart is that it had
an upside target of $64 and it achieved it already. I
think it can have at least one more rally, although I'd
prefer if the rally started from the trend line at $58.
Either way, it should test that old high at least.
In the last year, Jive Software (JIVE) has had two
gaps down (on earnings?) and one gap up, so put me in the
"I don't trust it" category, especially the fact that the
"base" is a mere six weeks in length. It can probably
rally, but I suspect it won't get very far. If it makes
it to $5.50, that'd be a lot.
US Silica (SLCA) is a much nicer chart to my eyes
than JIVE. It has crossed a downtrend line; it has been
basing for four months and it has made higher highs. It
looks a bit overbought here -- it hasn't been down this
week! -- so I'd be more inclined to buy dips in it, but
it does look to me as if it wants to get to fill that gap
But the market could use some more fear.
Market gets highly emotional -- and sloppy.
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