There has been quite a lot of market action in stocks as of late, so it is time for another Market Breadth Summary. Most market participants would look at the chart of S&P 500 and conclude that some kind of trouble only started several days ago as selling intensified and the volatility index jumped. However, the internal market breadth for the US equities has been deteriorating since at least June of this year. Let us look at a few charts.
Before I start, there is an important point I would like to make. According to the price behaviour and various indicators I track, market conditions are changing as bulls lose control to the bears. In other words, probability is quite high that the central bank sponsored rally, which has lasted for the better part of two years, has probably come to an end and the prevailing trend right now is bearish.
Why is this important? Because a lot of market participants fail to trade with the trend. Since I’m not that smart nor experienced, I will quote Jesse Livermore on this subject:
I was utterly free from speculative prejudices. The bear side doesnt appeal any more than the bull side, or vice versa. My one steadfast prejudice is against being wrong. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions, or my prepossessions either to do any thinking for me. That is why I repeat that I never argue with the tape. Obviously the thing to do was to be bullish in a bull market and bearish in a bear market.
This post was published at GoldSeek on 12 October 2014.
Follow on Twitter
Recent Comments