Look, I’m bearish right now, but I feel like everyone else is too, which has me concerned. When you feel yourself feeling extreme one direction or another, you have to raise a red flag in your own brain, try to see the other side of the coin.
Today, I had the idea at looking back at recent corrections, and man this looks much like 2011. Although there are a few differences.
Let’s start with the chart of 2011 and compare it to now.
If this doesn’t give you a holy shit moment, I don’t know what will. With Yellen speaking tonight after the close, is it possible we rally, sell off last 3 days of month to make lower low and then Rally into year end? Anything is possible, we just don’t know.
The major difference I see is that there is no Operation Twist this time around.
For those of you who forgot what that was :
Operation Twist (2011) (wikipedia link)
The Federal Open Market Committee concluded its September 21, 2011 Meeting at about 2:15 p.m. EDT by announcing the implementation of Operation Twist. This is a plan to purchase $400 billion of bonds with maturities of 6 to 30 years and to sell bonds with maturities less than 3 years, thereby extending the average maturity of the Fed’s own portfolio. This is an attempt to do what Quantitative Easing (QE) tries to do, without printing more money and without expanding the Fed’s balance sheet, therefore hopefully avoiding the inflationary pressure associated with QE. This announcement brought a bout of risk aversion in the equity markets and strengthened the US Dollar, whereas QE I had weakened the USD and supported the equity markets. Further, on June 20, 2012 the Federal Open Market Committee announced an extension to the Twist programme by adding additionally $267 billion thereby extending it throughout 2012.
Another thing I am looking at are the extreme conditions of stocks below there 40DMA. (T2108 on TC2000)
It’s reading ~22 now, and had a low of 5.99 on August 28th.
For the record in 2011, this indicator diverged when the Index made it’s lower low. That is, this indicator made a higher low as the index made a lower low. So on August 19 2011, it hit 6.51, and then when the index made a lower low, at the end of September, the low was only 15.19, that divergence sent the indexes into a multi-year rally.
We have not see proof of that yet in 2015, but I will continue to watch it.
The takeaway, from my perspective, is the bears still have something to prove down here, if they are going to take control of this market.
Love to hear your thoughts, please comment.