Market Observations: The Market looks heavy...

1) The VIX Future is hinting at another try for a bear campaign, where the 'playas' buy future

puts and sell puts today

2) Animal Spirits reach another EXTREME, a picture says more then a 1000 words
3) Medium Term Breadth blinks: OVERSOLD, OVERSOLD, OVERSOLD
4) Corporate Bonds will are the ultimate core of the current rally and they look vulnerable

We need more open minds like Brian Pretti......

Rarely you come across material that continiously stimulates your thinking. I'm reading Brian for years and have enjoyed his MACRO/ BIG PICTURE view a great deal.

You find Brian at the enclosed links:

• The monthly MUST read OBSERVATIONS (free)

• MUST Listen AUDIO from Jan 23 (just fwd to the interview with Brian)

• Fanatstic piece on Jan 22: Yesterday Once More where he discusses the dichotomy we see between the fundamentals and the market.......

(also the archive is worth the read)

High Yield Bonds...the new OIL....

Corporate Bonds are in a HYPER-MODE and should exhaust at some point in the near future.

Oil tumbled back then from 147 into the 30's and shows the normal characteristics of a parabolic move.

Credit would take the entire market as collateral damage with it should it collapse......

The Golden 5

The guiding principle with respect to technical analysis (TA) has always been the THE GOLDEN 5 (dimensions) of TA. The GOLDEN 5 represent the 5 dimensions of TA, which are:

1)Context & Relative Strength
What themes are driving the market?
What sectors are leading ?
What is the path of least resistance ?
Does the a.m. make sense from a fundamental angle?

2)BREADTH
Do we see a broad participation?
Do they all have fun or just the High Beta animals (like ...aapl, rimm, goog)
Is the herd exhausted, ie Overbought (Oversold)?

3)MOMO (Momentum)
How much "umph" do we see ?
How strong is MOMO?..or is fading?

4) VOLUME
Do we see real buying or just some hedgie and/or prop desk action?
Are patterns supported by Volume (like upside break out with strong, high volume)?
Bottoming / topping Vol pattern ?

5) Sentiment
What is driving the herd?
Are they all bullish or bearish?
What is the optionmarket telling and does it reconcile or diverge with the cash market ?


The Golden 5 just offers a desciptive framework, meaning we are still in the "VIEW FREE ZONE". The challenge or art now is to bring all observations together in harmony with the twist that you have to gage them from the perspective of the 2nd derivative. This means you don't have to wonder about the meaning of 1-5 but how the "regular analyst" would assess 1-5, what story they would spin to rationalize and what (contrarion) opportunity is left for you from a risk reward point of view.



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