The stock indexes are still oscillating in large, frequent swings. The chart above shows the absolute value of the close to close standard deviation daily moves based on the implied volatility of the options.The cyan reference line is placed at a 1.5 standard deviation. You can see that such a move appears every few days over the last couple of months, and with increasing frequency. There is understandably much uncertainty in the market. The fear of the much advertised double dip is a real possibility. It is of concern to me that sentiment has quickly gotten so negative that a rally would not be unexpected. Bear market rallies seem to pop up when there seems to be no reason for the market to ever have another up day. I was quite surprised today to hear a cable political show talking about the very much advertised bearish head and shoulder pattern. It seems the world is watching this pattern, even among those who thought the pundits were talking about shampoo. Again, and sorry to sound like a broken record, there is no edge in what everyone can see on a chart. As bearish as I am based on the economy and lack of leadership, I would be surprised if this pattern follows through in textbook fashion.
And regarding politics, I see little need to continue to bash the president and his inept administration. It should be obvious to anyone interested in the news to see he’s doing a great job in becoming the worst president in many years, possible in history. And the news keeps coming. Today I hear he now wants NASA to have its main objective to reach out to Muslims and make them feel better about themselves and their scientific contributions. That sounds like a joke, but that’s what was in the news today. I guess that’s fine, but isn’t NASA supposed to have something to do with exploring outer space? I can’t wait to see what the news will be tomorrow. I don’t see how the financial markets can survive if this idiocy continues from the government. I thought that the previous rally was being fueled by the falling poll numbers. The numbers continue to fall, but now the market is falling. I still think that was fueling the previous rally, at least to some degree. New information came into the market with the European problems. If the Euro stabilizes and if democrats have declining poll numbers going into the fall elections, I think the market could rally again. At least temporarily. I suspect we are in a primary bear market, and the full expression of the bear could extend much further than most can imagine. Rallies can be quite deceptive for those who want to be bullish. It is instructive to study past primary bear markets. But don’t expect the patterns to overlap. Each market cycle will express itself in its own way. It drives me nuts when I see people finding a pattern of swings from 80 years ago and expect that the same patterns will occur today in the same sequence. They never do. But the psychology and the sharpness of the counter trend rallies are interesting to study, and that can be applied to current markets in a general way.
I’ve been trading very little over the last couple of months. I do hope to get on a more regular schedule of updating this blog. But I’ve said that before. Sometimes distractions can get in the way of well intended plans. It is difficult to blog when I don’t have positions in the markets. I’m clearing away the distractions and hope to be fully back in the markets within the next few weeks, so hopefully this blog will become more active. I also have quite a few more technical articles I have partially written. If I can just find the time to finish those and get them posted.