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Wednesday, December 29, 2021

Market Update 12/29/2021- Is This What The New Normal Looks Like?

 1. Reminder: This is another truncated week; since New Years Eve is on Saturday this year, we get Friday off. That makes for 2 OPEX Thursday's in a row, which is a little unusual. I suspect we're not going to take out the 4800 level again. Many brokerage houses have already closed their books for 2021, so window dressing can come down, and the bulls have failed to buy protection...  

2. MLK day falls on the Monday before OPEX, so that's another truncated week. It's too soon to try to predict that outcome, but it's another thing to keep in mind, moving forward.  

3. After reviewing yesterday's update; I found that I failed to add the short term (5 min.) $SPX chart, showing the index bounce out of the hole, at the 50X moving average, as seen below. 

You clearly see to bullish hammers at the 50 moving average. Not sure who is trading this (5 min.) timeline, but I suspect it's computer programs? The only reason I notice this stuff, is because more and more, I find myself watching short term chart views on my phone, so I suppose it could be day traders buying these averages? Not really sure... 

4. Something I didn't mention in yesterday's update, is that the $VIX was simultaneously sold at it's respective 50 day moving average, on the daily candlestick chart. 

I think probably 90% of my audience doesn't really understand the full relevance of all these moving averages working in tandem. It's not normal, but this seems to be the new normal, and it could be a game changer! If computer programs are running the show, then don't expect Elliott Wave Theory, pattern trading, or channel trading to work. I find myself having to think out of the box, more and more, over the past several years, because the rules - that used to govern most markets - no longer apply.

I never used to have to watch 50 week moving averages, in order to pick a market bottom; but that's what it's come down to....   

Hypothetically speaking: 

1. What if bullish computer programs is preventing what used to be considered "normal healthy market corrections", and instead, money continues to be put to work, shorting the $VIX, and buying key moving averages. This would sure help explain a lot!  

2. What if investor sentiment is taken out of the equation? Well, what if I told you that bullish investor sentiment peaked out all the way back in the spring of 2020?! Again, half of my audience may not understand the importance of market sentiment, but it used to be that bullishness would peak out, and that would be followed by a "normal healthy correction". b. At some point - maybe a month later - maybe 3 months later - bearishness would peak out, and then you'd see the short sellers get squeeze, and then the cycle would repeat. Well, we haven't seen a normal correction in more than 2 years, and today market sentiment is bearish. It's not normal!          

Market Sentiment 

 I don't usually reveal my sentiment indicators, but I have several sentiment charts I use, to help me time markets. 

 $BPNYA (low extremes on this chart are where bullish reversals are found, while high extremes are bearish) - shows that bullish investor sentiment peaked all the way back in early 2020. after the Fed proved it was willing to do just about anything in order to keep global markets from correcting, but more importantly, it was an obvious technical bottom. 


Anyhow, you can also see - on the chart above - that investor sentiment continues to decline, along with the number of stocks which are trading bullish (above their 200 day moving averages), I might add. So, where is the normal health correction, we used to know? How does investor sentiment turn bearish, when the $SPX makes 70 new all time highs? It's not normal. 

And Speaking of other things that aren't normal, but are the new normal. Look at the volume, on certain indices, and especially the NASDAQ. Where is the money coming from? Are 30 different governments buying US tech stocks, or is taxpayer money being used to prop up the market? You decide... 

$COMPQ - look at the 2X normal volume on this chart! 

Of course I believe the market has to correct at some point, or totally collapse. I'm not sure what that's going to look like this time, but it probably starts with another Monday Morning surprise.  

Take Care, AA 

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