aversion
A strong dislike or disinclination: “an aversion to risk”.
Someone or something that arouses such feelings.
I think this sums up the state of the market this week.
If you recall, I posted a chart a few weeks ago that helps me road map changes in market conditions, and changes in a markets appetite for risk. We’re going to use this to draw some comparisons to recent market movement.
There are some compelling changes going on in the markets. Increased volatility being the most important to what I do, but other subtle signals have now become flat out warnings.
If you are in the game of calling tops, you know that they are a process, not an event. Rather than argue that, I am simply going to draw some comparisons to recent market structure and the sentiment cycle, to help you see what I called for in my videos and presentations last week. Here is a look at the sentiment chart:
Now, let’s compare that against the lower time frame of the S&P. 
On the higher time frame, its obvious that we’re still well within the returning confidence phase. However, recent cracks in the markets foundation can be pointing to warning signs and/or disbelief by the bulls. Either way, the markets have reached a point of confusion, as seen on the lower time frame.
I’ve used this same template to navigate each pullback and correction in stocks. It’s been an amazing tool.
When markets reach confusion, use this as an indicator to reduce overall risk and position size. I’ve spent the last few weeks working down my overall holdings considerably. I have raised cash and am waiting for further signs that confirm what I am watching for and called out last week. On Friday, I mentioned looking for the SPX to hit 1620-25. That happened today, and the market found buyers there. That now becomes an important reference point on the week.
I’ve started off the week in the hole. I’ve chipped into last weeks gains. I’m upset about that, but more importantly, I’m trying to stay objective about the market moving forward.
Bottom line: Today’s low is my line in the sand. SPX above 1650 is bullish.
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Good stuff right here OA
Thanks OA. So if we don’t hold 1620ish, bearish. Long or short I’m losing game, so I will sit with cash for a while. Look forward to reading your next thought.
JP, I was tempted to discuss how playing both sides here could go totally wrong.
I opt not to do this specifically for the chance of being wrong on both sides. Your play is best here, recognize the difficulty of the tape, wait for the easy move.
Thanks OA. Will keep learning from you.
Just a “second set of eyes” but I see the first higher low before “wall of worry”. So “wall of worry” would take us up to 1650 or so (maybe 1660) and aversion would perhaps drop us to 1630 before we go higher. But even in that case, still very bullish point.
Worst case I think we put in one more lower low before the lower high before the higher high, then wall of worry, aversion,etc.
P.s. what’s the name of that book you got that from again, I meant to check it out?
P.p.s. would also love to see a list of book recs in general from you if you don’t mind.
The equal high in the S&P was the tell. Take that into consideration.
In the sentiment chart, the first sign of a reversal is the equal high, or the “wall of worry” rally.
Again, lower time frame analysis. Zoom out a little and see the overall flow of things. The sentiment chart is essentially a head & shoulders bottom.
Take another look and see what I mean.
Justin Mamis “The Nature of Risk.”
Ok, I love you.
http://stockcharts.com/h-sc/ui?s=%24nymo
This further supports my case.
OA, can you explain this a bit further? Or do do you have a previous post talking about this indicator?
thanks
Yes, go back through my posts.
impressive analysis to say the least.
The bond and currency markets are saying a hell of a lot more than ‘confusion’. Anyway, another baseless, absurd ramp to short this morning.
Trying some AMZN down here
bought yesterday and added today – I am with you Brrrrrooo
OA, question for you if you don’t mind. Can you look at the 6 month chart of ABX? I am just talking the pattern and not taking into account the stock/company. Is it usually a positive when a stock pretty much “creeps” along the 50 or 200day? Obviously when it hits the 50 or 200 and reverses hard it is negative (if in an uptrend into resistance), but is there correlation when it takes the path that ABX is on? Or basically no mans land and a crap shoot? Thanks in advance.
I’d love to talk about this. After the bell? I’ve been dead on about this topic thus far. And there’s a decent set-up here.
hey OA, that means we can’t sell IQNT until the 14th ? http://www.streetinsider.com/Dividends/Neutral+Tandem,+Inc.+(IQNT)+Declares+$1.25+Special+Dividend%3B+21.9%25+Yield/8376634.html … not sure how this works . thanks.
You can sell now and still get the Divy. Since the trade settles T+3 your trade will settle after the 14th and you will be a holder of record.
You get the dividend, plus appreciation in the stock, which is up 6%.
thanks guys! nice trade. you holding here?
thx