In The Short Term...

In The Short Term...

During up-trending markets, especially during the fourth quarter, Thursday's kind of "puke" days tend to be great signs for those looking to put money to work on the long side. There have been these kinds of setups time and again over the past few years, and for the most part they've played out well.

The unusual thing about this one is that I can't find all that much to get excited about. Looking at the data from several different angles (the magnitude of the price drop, the skew in volume and breadth, short-term sentiment readings), I couldn't find much that suggested yesterday was a good buying opportunity other than perhaps for a next-day rebound kind of thing. Even when I factor in our current positive seasonality and the general up-trend we're in (and the fact that the S&P 500 cash index held above the 1490 support level that is becoming an increasingly talked-about focus point), I still couldn't find much that gave a solid edge.

That doesn't by any means mean we can't rally from here, it just means that I can't define the kind of edge that has occurred often in the recent past. And when I can't find what I think is an edge, I stay out. Sometimes that hurts as the market gallops higher anyway, but I'm all about trying to find a high-probability situation in order to risk my capital, and right now I ain't seein' it.

The latest Commitments of Traders data, released late this afternoon and covering positions as of this past Tuesday, didn't show much change from last week. The most notable thing about last week's report was the extreme net short position taken by "smart money" commercial hedgers in the Nasdaq 100 futures, something that has preceded sharp declines in that index with a high degree of consistency over the past several years— but of course, the COTs data could have changed substantially yesterday or today (to be shown in next Tuesday's release).

For the week ending Tuesday, they reduced their shorts a bit, from $3.3 billion to $2.1 billion, but it remains an historically high amount and theoretically should be a negative factor for that index when looking out over the next several weeks to months.

Other than that, about the only thing that really stood out in the report was that small speculators (supposedly the "dumb money" in all of this), went massively short the VIX implied volatility index. But contrary to the idea that these guys are dumb money in that contract, they pretty much nailed the August high by shorting it when the VIX spiked up above 30, and their record prior to that is very mixed.

This is a relatively new contract, so I'm not going to read too much into this week's extreme. It should be bullish for the VIX (and by extension, bearish for the stock market since the two tend to move conversely to each other), but the data has been too inconsistent to suggest that that's a high-probability bet this time around.

Guess I'll wait for Sy H.'s blessing to buy...

Normxxx    
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