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Trapped!

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Each morning I go through a routine that includes reviewing and updating my various indicators by hand as well as reviewing the major index charts. Nothing, absolutely nothing, has changed dramatically enough to alter my current view that the market is unlikely to find an intermediate-term bottom until the weekly indicators outlined last week reach levels that have led to meaningful lows and significant rallies over the course of the current secular bear market. While the near-term indicators suggest that the market is ripe for a bounce, evidence points to a very limited bounce until both the near and intermediate-term indicators become washed out.

A washed out intermediate-term picture can come in one of two ways; through a sharp and severe price decline, or a slow grinding market that seems to go down a little bit every day and week. Given the geo-political news backdrop, it would make sense for a sharp price decline, but that just seems too obvious at this juncture. Typically, when sharp and major moves take place it is because too many people are trapped in one side of the market and rush for the exits at the same time. If the majority of traders are short, it can cause one heck of a short-covering rally, and visa versa if the majority of traders are long and go to sell at the same time.

Right now, it seems there is no consensus and everyone sees the same thing I see, which means the majority isn't potentially trapped anywhere. The shorts are constantly reminded about the huge jump on the initiation of the Gulf War in 1991, while the longs are constantly reminded that even without Iraq, the geo-political and economic landscape are dicey at best right now. Add that framework a very mixed technical outlook (oversold near-term, losing momentum intermediate-term) and you get the majority of the people tapped in boredom while waiting for a move vs. trapped in a position expecting a move.

The news behind the market is constantly changing; the one thing that doesn't change is human nature. People get trapped when they have a high level of conviction, which I refer to as having "courage of your conviction." When there is a high level of confidence, they add to their position as it goes against them believing that eventually, they should be proven right. After a three year bear-market with constant whipsaws and news items out of nowhere, it is my opinion that conviction levels are low, most are trading with light positions and are waiting for signs of a sustainable move in one direction or the other before acting in a major way.

Either way that it comes, the only way it seems to get enough people buying is for the intermediate-term indicators to reach levels that have led to prior countertrend rallies that last longer and go further than most expect. They simply are not there yet.
No positions in stocks mentioned.
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