OnIslandTrader's Blog : Another market temper tantrum

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For the original article with charts go to
http://blog.onislandassetmgmt.com/?action=view&url=another-market-temper-tantrum
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Bernanke spoke, but the market wanted action. Now investors are showing their disapproval by kicking and screaming on the floor. We've seen a lot of these little temper tantrums over the past two months, but we haven't made any progress to the downside. We are nearly 15% off the highs of the rally, with the Fed still fully stimulative, and a stable -- though highly elevated -- jobless rate.



Sentiment went extreme two weeks ago, registering roughly 25% bulls to bears. Although extreme readings like these do not suggest the ultimate low has been reached, they do suggest that selling is overdone for the time being and major new lows are unlikely to be reached without first rebalancing the teams. The snapback to 50% is simply because being a bear became fashionable, and many of the polled AAII investors pride themselves on their independent thought. This was a rare print, very close to the lows seen prior to the only two big rallies of the last bear market.


A few breadth measures such as the NYSE Adv-Dec index and the NYSE High-Low index continue to hold up well despite the market's woes.



The number of NYSE stocks hitting new highs has been gradually climbing higher as well, despite the market hitting fresh lows (granted these are very low levels though):



Although the next few weeks will be volatile and we may see new lows, we believe it is time to start lightening up on the hedge. It has served us well over the past two months but this correction appears to have run its course for the time being. There is far less risk in the market now than there was in the six months preceding the correction. We're taking a third off now, with the next third to be removed on a breakout above last week's highs, and the final third to be removed as the market regains the 200 day moving average.