QUICK STOCK MARKET UPDATE

The 5 day 2CS indicator (VXO * total CBOE P/C) dropped to 55 yesterday, January 18, 2011. The last time the 2CS was this low was on April 14-15, 2010. And the last time before that was on June 4, 2007. What normally happens when market-based sentiment gets this frothy is for the market to thrash around, perhaps even making new highs but with rising volatility, for a few weeks before giving up the ghost.

I've been doing this indicator daily by hand since 1996 in all sorts of markets. The absolute levels of 2CS at intermediate term market tops and bottoms can vary or range shift over time, but this is extremely bullishly configured, and that is very bearish for the market "in due course".

I started buying VXX and SDS a few weeks ago very gradually and only on hard down days when 2CS dropped into the 60's. I am under water so far but only quite modestly after today, January 19. As always keep in mind that this is only my personal opinion. I am not an adviser, don't want to be one, and am just recording my own life.