“It happened just as I figured. The traders hammered the stocks in which they figured would uncover the most stops, and sure enough, prices slid off.”
-Jesse Livermore, Reminiscences of a Stock Operator
No matter where the bulls go now, here we are. The Pain Trade is finally to the downside as a lot of players in this game are caught off-sides. This morning’s release of the II Bull/Bear Survey tells you most of what you need to know from a sentiment perspective. Bears dropped from 33% last week to 27.5% this week and that, my risk management friends, is not Bearish Enough.
In the US stock market, the inverse correlation to watch most closely here is SPY/VIX. We have been talking about this 22-23 support zone for the VIX and our Bear Market Macro line of resistance for the SP500 (1144) in meetings from Boston to Chicago and back again through NYC yesterday. As of 130PM EST, both have once again confirmed our bearish intermediate term stance on US Equities.
All that said, the SP500 is immediate term oversold anywhere south of the 1093 line and we’d be covering some shorts and buying some longs here for the immediate term snap back TRADE to 1111. This isn’t a time to freak out and sell everything. Do that when the VIX is at 23 again.