The above graph shows the DJIA during the Great Depression, when it staged at least five high percentage compact rallies, none of which ended the nightmare. With regards to today's stock market, without a retest of the the bottom, the market will likely follow this trend and continue down, down, down.Frank Barbera's Market Analysis:
I've always had a lot of repsect for Frank Barbera's stock market analysis. I look forward to his writings. You can find his current article here. He provides a brief analysis of the market put-call ratios, but uses the AAII Sentiment Survey. He takes the total percentage of calls and subtracts the total percentage of puts to arrive at the net percentage of calls (as a postive number) and the net percentage of puts (as a negative number). Using this methodology, the market is extremely bearish at -36%.
Using the CPC and the CPCE, the market is bullish in total aggregate put-call volume. Frank's analysis relies on the total numbers of postions, rather than volume of put calls. Since the put-call volume is bullish, but the number of positions are bearish, and the total number of small positions should exceed the total number of big investors, I think it would follow the the small players/investors are bearish and the big money is bullish. I will have to start looking at and analyzing the "AAII Sentiment Survey" each week.
Frank goes on to say if the market continues to rally on here going above 7,450 for the DOW and 780 for the S&P - - without forming a base, then sentiment levels will change quickly to the bullish camp, which will short circuit the rally leaving a "failed bear market rally." Thus, the rally could only last a few more weeks at most; then yield to a renewed bear market decline. So, a short term bullish outcome is bearish.
Frank says, "Conversely, if prices halt the advance at these levels and begin to decline again in the near term, this could then set up the potential for what would ultimately become a much larger and more sustained stock market advance, one which could last many months. Thus, the ‘reversed-polarity’ and the ‘upside-down’ condition where a decline from here could actually be good news. It is of course ironic, as so many perceive the stock market rally as the first tangible sign of hope. For most, simple logic would argue that still higher prices would suggest that things are going to get better. Perversely, this is not likely to be the case."
Frank makes the case we need a retest of the lows before the market can stage a multi-month advance. He says, "Without that, the odds are high that the current rally will end up looking very much like one of the five or six stock market rally attempts seen during the Great Depression, where prices rallied sharply, but could never sustain the advance. As a result, we are in a paradoxical environment, where for stock prices to truly begin a sustained advance, and truly indicate a real improvement ahead, prices need to go DOWN FIRST. DOWN is GOOD in the current climate."
I find myself agreeing with Frank's analysis. We are at a critical fulcrum point. I now sumise the market will squeeze the shorts into options expiry on Friday, March 20. The market will have to go down too far to squeeze the longs in the remaining time left; i.e., three days. What happens after options expiry next week, whether the market continues to rise, or falls to form a base, could very well determine the health of the stock market for many months to come.
I'm having some friends and family over for Saint Patty's day dinner. I will post the CBOE graphs late this evening.
Using the CPC and the CPCE, the market is bullish in total aggregate put-call volume. Frank's analysis relies on the total numbers of postions, rather than volume of put calls. Since the put-call volume is bullish, but the number of positions are bearish, and the total number of small positions should exceed the total number of big investors, I think it would follow the the small players/investors are bearish and the big money is bullish. I will have to start looking at and analyzing the "AAII Sentiment Survey" each week.
Frank goes on to say if the market continues to rally on here going above 7,450 for the DOW and 780 for the S&P - - without forming a base, then sentiment levels will change quickly to the bullish camp, which will short circuit the rally leaving a "failed bear market rally." Thus, the rally could only last a few more weeks at most; then yield to a renewed bear market decline. So, a short term bullish outcome is bearish.
Frank says, "Conversely, if prices halt the advance at these levels and begin to decline again in the near term, this could then set up the potential for what would ultimately become a much larger and more sustained stock market advance, one which could last many months. Thus, the ‘reversed-polarity’ and the ‘upside-down’ condition where a decline from here could actually be good news. It is of course ironic, as so many perceive the stock market rally as the first tangible sign of hope. For most, simple logic would argue that still higher prices would suggest that things are going to get better. Perversely, this is not likely to be the case."
Frank makes the case we need a retest of the lows before the market can stage a multi-month advance. He says, "Without that, the odds are high that the current rally will end up looking very much like one of the five or six stock market rally attempts seen during the Great Depression, where prices rallied sharply, but could never sustain the advance. As a result, we are in a paradoxical environment, where for stock prices to truly begin a sustained advance, and truly indicate a real improvement ahead, prices need to go DOWN FIRST. DOWN is GOOD in the current climate."
I find myself agreeing with Frank's analysis. We are at a critical fulcrum point. I now sumise the market will squeeze the shorts into options expiry on Friday, March 20. The market will have to go down too far to squeeze the longs in the remaining time left; i.e., three days. What happens after options expiry next week, whether the market continues to rise, or falls to form a base, could very well determine the health of the stock market for many months to come.
I'm having some friends and family over for Saint Patty's day dinner. I will post the CBOE graphs late this evening.
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