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Pay No Heed to Greed


Risk control is the order of the day.


Visiting Minyanville HQ was exactly as I thought it would be - awe-inspiring. It was great to reconnect with Toddo, who's envisioning a different financial landscape, and his amazing team, who are carving those dreams into reality.

So here I am, back on my trading desk, back to reality. And I still have no commitment to the market, as I shared last week.

This recent decline has been different from the ones in October and November, 2008.

In October, it was extreme panic and the hyperventilation to go with it; it was almost as if the markets had already endured a cascading crash. November brought an incredulous response and fears of an impending crash were palpable. And now it's the slow grind and the market is falling slowly every day. But believe it or not, there's no fear that's being captured in the sentiment indexes.

That, my friends, is the true color of the bear market -- and, incidentally, my favorite color -- red.

On the oversold front: Well, we're getting there, but it would be best if the markets aren't prematurely rescued.

  • S&P Short Range Oscillator was -6 as of close on 2/19. It's oversold territory, but honestly the market has responded to much deeper levels of oversold conditions in October and November.

  • McClellan Oscillator was at an oversold -282 real-time. As the chart shows, the only two points below this was the November low.

  • And yeah, if you're keeping a tab, today a close in negative territory would be day 9 for Dow Transports.

So, the charts show that we're getting ready for an oversold rally. I am, however, somewhat worried about the fact that the market couldn't even muster a weak bounce after the February 17 significant decline; VIX is at a mild 47.08 (as opposed to mid 70s in October and November); and lastly, would anyone want to really take big positions on a Friday?

So, while I'd look to participate in any oversold rally, I'd pay more heed not to greed, but to risk control.

Click to enlarge

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No positions in stocks mentioned.

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