Friday, January 18, 2008


Considering the current state of the equity markets, the comment for this weekend is going to be quite extensive and in a nutshell will show why the odds remain very low that we are entering into a bear market and also why this is a superb time to add to your long term positions.

There is no doubt that the market has some serious technical hurdles to clear before we can really begin to get fully invested (40% allocated currently), the data I am getting not only from standard models but also from my own created models shows clear evidence that the current market correction is offering opportunity.


It is at times like these, that no matter how difficult it may seem, the environment is right for searching out equities that have been hammered and still remain strong viable companies that simply have gotten out of sync with their values.


Below is a chart of the NYSE short interest ratio and represents the sentiment on the floor.

Typically I am not a very avid follower of this model as it is very fickle and hard to correlate.

However, when you see any model that does the things this model has done over the last 7 months you have to take notice.

Like I said before, this is a sentiment gauge and the absolute level is not nearly as important as the velocity at which it moves. This velocity tells us exactly how nervous traders are on the floor and high velocity certainly has dictated a climax in market movements before and this is how we are reading it this time.

Simply everyone is jumping on the short side of the market and we know what that means.

This model is Bullish.

Here is one of my inventions and a model that has been simply spectacular at pinpointing major turning points in the market.

This is another fear measurment and you can plainly see that the levels it has reached have been very indicative of a market at or very very close to a major low.

This Model Is Bullish

Below is the McCellan Oscillator which is a measurment of pressure either up or down.

You expect this model to make new lows as the market makes new lows and if it fails to do this, it creates a positive divergence.

There is also a McCellan Summation Index that puts this oscillator into a trending formation and this model also is not confirming the current lows.

Both of these Models Are Bullish

Below is a model that all of you have seen me use over and over again.

This is about as close as you will get to an intermediate term Holy Grail Model.

Currently we are waiting for it to turn up to signal the all clear to purchase equities hand over fist, especially with how deeply oversold it has become.
This Model Is Bearish Until It Turns Up

This past week I had posted the chart of the VIX with the wedge on it.
I had talked about what this was going to tell us once it broke either way.
Now it has broken, but is behaving like it may become a breakout failure which actually would be more bullish then had it simply worked lower and broke out to the downside.
However, we have to call a spade a spade and until this breaks back into the wedge and signals failure the VIX remains a negative.
This Indicator Is Bearish

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