Buyers Have Left the Building

Here’s a quick blurb from my weekly piece over at TraderPlanet:

Most recently we’ve seen a fairly large divergence in buying volume, lasting almost the entire rally since July. Buying pressure has nearly fallen off a cliff during this recent bout of weakness in the S&P 500, a sign that equity bulls either had weak hands to begin with as they pull the trigger to exit their longs or there just hasn’t been very many bulls coming to the party the last few months, which if true, will create more heartache for those still holding long and strong.

Go read the rest here: Forget Elvis, Buyers Have Left the Building (TraderPlanet)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything written and/or displayed here is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

More Signs of Cracks in Equity Strength

Another post of bearishness, my apologizes. As I’ve said before, I don’t like being bearish, I try to be a positive person but when it comes to the current market environment that’s just been something I haven’t been positive about. From late-September I’ve written about the Trouble For Equities, More Trouble For Equities,Equity Fake Out, and Declining Slope, I haven’t hid my frustration.

This morning Barry Rithotlz, who writes one of my favorite blogs and is a portfolio manager I have a great amount of respect for wrote a note this outlining some of the changes he’s made in his client’s portfolios. Some of the changes include cutting his equity and emerging market exposure, raising cash, and he now expects there is a 60% chance of a recession in the next 18 months.

Here are few of Barry’s comments:

I don’t imagine we go straight down from here; There will be sell offs and rallies, pre and post elections. There will be some data points that suggest things aren’t so bad, and then some that are awful. It is not a black and white situation.

…..

One last point: This is NOT a batten down the hatches, go-to-100%-cash, looking for a 50-60% crash type of expectation. (We, um, already had that one). Instead, this is looking like a regular earnings and revenue shortfall driven recession, with equity markets at risk for a 20-30% correction

Barry also mentions that “Investing is an art form that requires probabilistic decision-making using imperfect information about an inherently unknowable future.” Which I 1000% agree with. Nothing is perfect or right 100% of the time when it comes to trading. Everyone has different risk appetites and time horizons and investing and trading decisions need to be decided around those two variables (among others).

With that, I agree with Barry in regards to his viewpoint on equities. Although I wish I didn’t. We have come down about 5% since mid-September, and as I’ve said before, things don’t typically happen in a straight line. With some pops from a few good days of earnings and/or election results might wash some weak bears out of their positions, but at this point not sure that will be enough.

Source: Time to Reduce Equity Exposure . . . (Rithotlz)

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

Overextended VIX…. Or Is it?

One of my favorite things to chart is the Volatility Index (VIX). It’s a fickle index and that may be one of the reasons I enjoy watching it. I’ve previous discussed interesting setups taken place in the VIX (here and here most recently) and I think it’s time to address the Volatility Index once again.

This morning the VIX is up almost 17%, likely due to the lackluster earnings season we’ve been having so far in Q3 and the rumors that Bernanke won’t continue as Fed Chair if Obama is elected. The one key thing to remember when it comes to the VIX is the ability for it go continue its trajectory for much longer than many expect. But that doesn’t mean it doesn’t present itself with some mean reversion opportunities for us to look at.

Below is a chart of the VIX with a Bollinger Band overlay and the Williams %R indicator in the bottom panel. I like to use these two to help gauge where the VIX is and how far the rubber band has been extended, so to speak. Today’s price action has taken the VIX to its largest gap above its upper Bollinger Band since April. These types of pops often lose their steam fairly quickly or form a type of consolidation before either having one last burst or dropping back down.

Turning our attention to the Williams %R indicator, which is a momentum indicator that looks at the current price in relation to its highest high over the look back period, which is 35 days in the chart below. When the indicator gets above -10, we typically see some type of correction in the near future for the VIX. The indicator can be looked at on an absolute basis or for divergence from price, currently the indicator appears to be fairly stretched.

So will volatility drop like a rock? Like I said, the moves that the VIX takes can often outlast what many expect and just because it’s currently overextended doesn’t mean it can’t be more overextended (just look May ’10 and August ’11). The way earnings season is shaping up, anything is possible.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.