So what does that mean? In the last few columns we discussed the fact this market is sitting on some really shaky support. Markets didn’t stop going down last year so much because buyers couldn’t wait to get in at the great valuations; bears gave up when Europe didn’t have its Lehman moment. It was only later that fund managers who were forced to chase came into the market. The same thing is happening again. The charts look as crummy as they do because they build up the fear and take the market down and when it fails to materialize they run for the hills. It’s not a market of buyers, just a battle between the smart and non-committed bears. If you can understand that, you have most of the battle won. In the bigger picture it still resembles the kind of correction we’ve been talking about for the last 3 months. Namely a winding and grinding intermediate level correction that isn’t likely to end until such time we all give up on the notion that it can go higher.
If you want to be frustrated about anything, consider a VIX that dropped into the 21 handle last week after hitting near 25 for the week. These European rumor mongers are not doing anyone any favors. Every time they come out and say they favor a QE type approach, the VIX takes a hit and just pushes the end of this correction further down the road. We were hoping we could see this time window create a low but now that we are here and the market is higher we are still at risk for a high. What news event could accomplish that task I have no idea. But I will tell you I sincerely doubt a VIX in the 21 handle can create a sustainable bounce that will get the market to new highs for the year. It’s possible; it’s just not very likely. So while everyone is looking at the global economy and the fundamentals of the debt problems, I’m focused on market sentiment and psychology because it has been driving the bus and will continue to drive the bus. That’s why the chart of the week is the VIX which is way too low to sustain whatever it is we are developing. Okay, we’ve had several weeks of short covering every time we see a ray of sunshine when it comes to Europe. If there are real buyers out there they need to come out and start committing to this market. If they don’t we could see the high fairly soon.
Click chart to enlarge