The market gives off many signals and since we sometimes lack clarity and focus due to certain issues it can become a guessing game.
I find that the less people understand about the affect of news and events on the markets the more they tend to drift toward technical analysis and sentiment to explain it away! It’s quite fascinating how the human brain works. We always seem to need a reason, rationale or explanation for something that happened, and more clarification before we step forward.
Last week’s severe drops were notable from a price perspective but was not confirmed with heavy volume. This tells us big institutions were not distributing stock; rather it seemed a rotation was at hand along with some ‘backing and filling.’ Certain groups were whacked – namely the higher beta names of biotech, select technology and some energy. The oscillators I followed reached a deep oversold level, the VIX climbed to over 18%, put/call ratios swelled to their highest levels in weeks, the TRIN (arms index) was at bloated levels and price was leadership was absent.
So, maybe it was the right moment to get long? Certainly seems so, as we have noted time and again of the ‘buy the dip’ mentality, pervasive in 2013 and continuing in 2014. This requires a certain ‘comfort level,’ and much of that stems from the Fed and Chairwoman Janet Yellen, who once again showed this week they are focused and determined to stay put until things really get better.
This week showed the powerful effects of going against the crowd, which was leaning bearish – about a 2.5% gain this week for the SPX 500 and potentially higher. As we become overbought it’ll be the time to start lightening up, getting ready for —you know it! The dip buy.
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