It's quarterly rollover time again for stock index futures, futures options, options on stocks and stock indexes, options on stock ETF's and Lord knows what else.
I'm seeing several unusual events which are somewhat contradictory. In SP500 futures the on-balance volume of trading is sharply breaking below the three month (65 day) moving average for one of the first times since March 2003. And the uptrend of SP500 futures open interest may be above the open interest for the second consecutive quarterly "extirpation". These two events suggest that the majority are getting nervous and short.
However, the CFTC Committments of Traders commercial hedger category has been lifting short hedges (getting more exposed to the long side) for the past few weeks.
Also on intra-market internals and sentiment measures I am seeing the extremely bearish readings that one sees at extreme sold-out low prices. Clearly the public and especially the media are totally panicked by Hurricane Katrina, Iraq, and gasoline prices or possibly (?) for political reasons. This could explain these striking dichotomies of opinion amongst different types of investors. The panicky element is normally nearly always wrong, but if they get too terribly spooked and take off running, they can stampede everyone, and it's wise not to discount this possibility entirely.
Nevertheless, I have had some substantial hard-won but fruitful outcomes from following my indicators in similar situations, and I believe we will go up. We may chop around for a week, but with next week's 11 week cycle low looming (September 22), I see a big rally coming. The market could go a bit lower first but I won't get too greedy for bargains and miss the move up.
Click on the image for a larger pop-up version.I am going to be on the road for the next ten days and may be unable to update the blog.
Gold remains in a great rally and is rising against all currencies. I am always reluctant to buy assets which are rolling up unless it is part of a long term regular monthly plan. I'm happy with the gold positions I have for now, but will always look to add on breakdowns for the long run. This is one area where I have been in "buy and hold" position since the late 1990's.
Oddly, both gold and bonds have done quite well since 1999. This does not exactly fit my long term inflationary view, and I'll get into that subject another time. Personally I think bonds are overvalued, but I would never short them until they prove my idea right.
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