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Re: Inverse Head & Shoulders on the S&P

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  • Mon, Aug 10, 2009 - 02:30pm

    #17
    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Inverse Head & Shoulders on the S&P

I spent the weekend studying the current market sentiment indicators, and though some of them are in extreme territory, like the Equity-Only Put/Call ratio (twice as many call options as put options), overall I don’t see the type of extreme bullishness that is necessary to end a rally of this magnitude. There are some signs of excessive speculation in the Rydex funds, but not to the level that has me standing up and shouting, yet. The only sentiment that seems truly extreme at this point is the ubiquitous bearish sentiment for the USD. 

During this rally, the dumb money has been very quick to jump on-board the shorting bandwagon at any sign of weakness. No doubt many of them lost serious money in the short squeeze that ignited the second phase of this rally. IMO, its going to take another significant short squeeze (or maybe two) to get the dumb money to hesitate on shorting this market at the first sign of weakness. As I have stated previously in the paid-section of these forums, I don’t think this rally will end until we see a new record capital outflow of the Rydex/Proshare Bear (inverse) Funds/ETFs. 

I have been concerned for sometime that this rally was 2003 all over again (i.e. a new bull market), but how often do you see a crash of 08’s proportion be technically composed of a single leg down? Not very often (1987?).  

Bottomline: If the smart money (i.e. the OEX traders in general, and Goldman Sachs specifically) is going to profit on the next leg down in this bear market, and they always do, then mom & pop need to get a lot more bullish than they presently are. With the current market momentum, and the copious amounts of cheerleading regarding the economy in the MSM, this process may not take as long as I have recently thought. All it would take is a strong September/October market performance (short squeeze) and you wouldn’t find a bear anywhere in the dumb money crowd.