AI
Friday, May 02, 2003 11:18:45 PM
Here's an interesting excerpt from 21st Century's morning breifing.
You'll notice how the markets have gone through the same phase sequence twice in a row. It starts with a quick down/up move -- the ones that lasted 32 and 30 days on the chart. Then the SPX went into mid-term downtrends, which lasted 33 and 39 days. The uptrend off the October low went 36 days.
And now the uptrend off the March low has also lasted 36 trading days. We're now clearly in the zone for a mid-term trend change.
Yesterday's action was highly consistent with a change of mid-term trend as well. This action is what I call "fibrillation", which is a typical output pattern seen at phase changes in non-linear dynamic systems, such as a human heart, or the stock markets. The market has been subjected to sudden, arrhythmic shocks up and down. Yesterday's violent move down -- and equally sharp move back up -- is entirely consistent with an uncertain market on the brink of a chaotic move.
The implied volatility in the markets is also on the rise. Yesterday the VIX gapped up and started running up on the morning sell-off, but backed off considerably during the afternoon rally, leaving a "doji" candle.
The momentum of the VIX is now on the rise, showing it is now the bulls turn to get squeezed. This also looks to be one of those times when the implied volatility is early in calling the trend change. Remember, the VIX is a measurement of pricing in the options market, and the collective wisdom of traders will often anticipate the rise in volatility associated with a change into a downtrend in the markets. This is exactly what happened back at the top on December 2nd -- the VIX started rising ahead of that top.
But it's also interesting to see that the market made one last big push higher after the VIX started rising back then, which quickly failed. I remember it well. The SPX went from 913 to 940 in one day, and that marked the end of the road for the uptrend. But the fibrillation at the end of that mid-term uptrend cleared the decks of both longs and shorts, and set the stage for the bigger decline.
I think the market is doing this again right now. Its current business is cleaning out as many short-term positions as possible before embarking on a new trend.
The market is getting ready to go into a mid-term downtrend, no doubt. But we may see more of this violent back and forth fibrillation first, and we may even see another breakout attempt. The nastiest thing the market can do right now is suck in breakout players on the long side, ahead of a larger collapse. So we'll continue to wait for this mid-term uptrend to fully exhaust itself before entering short positions.
You'll notice how the markets have gone through the same phase sequence twice in a row. It starts with a quick down/up move -- the ones that lasted 32 and 30 days on the chart. Then the SPX went into mid-term downtrends, which lasted 33 and 39 days. The uptrend off the October low went 36 days.
And now the uptrend off the March low has also lasted 36 trading days. We're now clearly in the zone for a mid-term trend change.
Yesterday's action was highly consistent with a change of mid-term trend as well. This action is what I call "fibrillation", which is a typical output pattern seen at phase changes in non-linear dynamic systems, such as a human heart, or the stock markets. The market has been subjected to sudden, arrhythmic shocks up and down. Yesterday's violent move down -- and equally sharp move back up -- is entirely consistent with an uncertain market on the brink of a chaotic move.
The implied volatility in the markets is also on the rise. Yesterday the VIX gapped up and started running up on the morning sell-off, but backed off considerably during the afternoon rally, leaving a "doji" candle.
The momentum of the VIX is now on the rise, showing it is now the bulls turn to get squeezed. This also looks to be one of those times when the implied volatility is early in calling the trend change. Remember, the VIX is a measurement of pricing in the options market, and the collective wisdom of traders will often anticipate the rise in volatility associated with a change into a downtrend in the markets. This is exactly what happened back at the top on December 2nd -- the VIX started rising ahead of that top.
But it's also interesting to see that the market made one last big push higher after the VIX started rising back then, which quickly failed. I remember it well. The SPX went from 913 to 940 in one day, and that marked the end of the road for the uptrend. But the fibrillation at the end of that mid-term uptrend cleared the decks of both longs and shorts, and set the stage for the bigger decline.
I think the market is doing this again right now. Its current business is cleaning out as many short-term positions as possible before embarking on a new trend.
The market is getting ready to go into a mid-term downtrend, no doubt. But we may see more of this violent back and forth fibrillation first, and we may even see another breakout attempt. The nastiest thing the market can do right now is suck in breakout players on the long side, ahead of a larger collapse. So we'll continue to wait for this mid-term uptrend to fully exhaust itself before entering short positions.
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