Both are overbought on flagging momentum. Note the high and downsloping RSI (Relative Strength Index) since yesterday:
Source: Prophet.net
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I’ve been playing around with Tim Knight’s creation, Prophet Charts, and I have to hand it to him — this is the best assembly of technical analysis tools that I’ve seen. Stockcharts.com is still pretty good for a free service, though (I haven’t tried their subscription tools).
Also of note today is that the VIX has broken 20. Options are cheaper than at any point since the Summer of ’08. The lofty equity valuations, flagging momentum and sense of complacency remind me of the Goldilocks winter and spring of ’07, when prices drifted upward slowly in a narrow channel before suddenly cracking, first with a 400 pt decline in the Dow on one late February day, then with the seizing of the credit markets in late July.
Nice to see you posting again. Your insights sum it up well.
I have been slowly collecting LEAP Puts on the IWM QQQQ SPY since July. It has hurt but I still belive it is the right play. They get cheaper everyday but once volitility returns they will come back in many cases 2-3x with a VIX move over 30 even if the underlying is only down 5-10%. There are also a host of 2011 Leaps now.
Here’s the thing…
The elements of last year’s collapse are unlikely to re-occur and even if they did, the market would not react similarly. Markets have memory… a sort of been there, done that and the second time usually elicits a weaker response.
Yes the market can fall from here but anybody expecting new lows will be sadly disappointed. But then again, everybody appears to be long risky assets (mostly corporate bonds it seems) so my devil’s advocate is telling me to be short anyway…
Well, this week marks the 20th anniversary of the Nikkei top: 39,000. I’m showing NKD futures at 10,570 right now. There have been a lot of bear market rallies on the way.