An image is worth a thousand words. Need more? Read Gartman below.
Charts from Bespoke Investment
From Dennis Gartman:
(…) history has shown that when the markets fall in unison collectively right after making new highs it means that the shorts have been run in;
that all buying has been sated and that a prolonged market downward trend is only just beginning. This break will end when, after a great deal more weakness, we see prices collapse in unison again in a crescendo
of selling. At the moment, we fear that we are only now seeing the beginning of this selling; that the public has only just gotten long after remaining out; and that they’ll not begin liquidating until prices are lower and their hopes have been dashed yet again.
What is particularly bothersome is that the volume is indeed rising as prices weaken. The fact that prices were rising while volume was waning caused us to view the last several weeks of the rally with a great
deal of suspicion. Our suspicions have been vindicated. We fear, however, that our worst fears shall also be made whole as share prices fall 10-15% from their highs of last week before this correction shall
have run its course. From there, we’ll adjudge again. For now, suggesting a 10-15% correction is sufficiently bearish, although we fear that even worse may lie ahead.(…)
Will the market’s “bounce” today? They had better. The problem is that trend lines that had been support below before shall now become resistance from above ahead. As we write, the S&P; futures are trading 3-4 “points” higher, but we fear that that strength may not last long. We’d urge selling into it.
David Rosenberg also wants to convey his bearishness:
And, in terms of risk appetite subsiding, we couldn’t help but notice the VIX index taking that 12.4% jump yesterday, to 27.91 (up 30% from last Thursday) — it was last there on September 2nd when the S&P; 500 was sitting at 994.
The Dow transports have broken below the early October support level of 227.1 — now trading at 225 — and down 9% from the nearby double-top. This may get exciting since the transports are the major artery for the economy.
The volume on the NYSE during the latest selloff in the equity market has been very high (we defined high as being above the three-month moving average). During this market rally from the March low, we have seen several four consecutive down-days in the equity market; however, what makes this current four-day losing streak unique is that it occurred on very high volume.
And, in the last seven trading days, the markets are actually down on six of those days and … on higher volume. These are called ‘distribution’ days and they can mean trouble. The last time we saw this combination of selloff and high volume was in late February/early March as the market was plumbing the depths. As we’ve said before, much of the rally that from the March lows was premised on low volume — this was a “low conviction” rally premised on short covering and huge hedge fund and flash-trader buying; but participation was thin and when volume is low, exaggerated moves (this time to the upside) are very common.
Indeed, from the March low, there have been 95 up days and 72 down days. During the up days, 62% were on light volume and only 38% occurred on higher volume.
We don’t claim to be technical analysts, but in a rally that was premised more on technicals than on fundamentals, it pays to have an understanding of chart patterns, retracements and market internals.
The latest Investors Intelligence poll showed the bull share at 48.3%; the bear share at 22.5%; and only 29.2% believe a correction is coming. Look out below!
Investor sentiment remains a challenge here for the market. But just as the hedge funds lock in their gains for the year, there seems to be dearth of buying power for the market. Pension funds are not rebalancing as far as we can see. Corporate insiders are still selling. Retail investors have only been allocating a very small part of their cash holdings into capital appreciation equity funds, preferring to express their views in fixed-income — this looks to be a secular trend. And now we see that bearish bets are coming back into vogue based on the short interest on the NYSE, which rise 2.9% in the first half of October.