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Is This Bullish-type Action?

Author: Bob Lang (info)
Website: http://trade-mentor.com
Posted: March 9th, 2007 at 12:13 am EST
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Let’s talk a little about psychology and markets today.  There generally is what’s considered ‘bullish behavior’ during the trading day.  Many would consider a morning fade followed by a late surge as classic bullish action.  This was typical during the recent bull run from late summer to recent month of February.  But what about now?  This week has had something for everyone with gaps, traps, reversals and choppy action.  What’s more difficult to surmise is the gapping action on the open…which traps the short sellers mercilously on the open and barely allows long traders to enter for fear of buying into a seller’s gap.  Tough to gain any traction and with the rise in volatility, well..it’s clearly not a game for amateurs. 

When and if we see a change in this action certainly depends on the emotional rollercoaster.  While it’s been said last week’s action is corrective in nature, the high volume and the price drop certainly raises questions.  Prices fell with ease like a hot knife through butter last week.   The calendar says we’re heading into a seasonally weak period where bouts of selling will hit like a ton of bricks.  The volume last week tells us that institutions are going to sit this next wave on the sidelines.  Sentiment by way of the VIX also says some fear is present.  Which brings us to another thought about the speed of any recovery.  The elusive V bottom is generally considered a myth….why is this?  Simply put any bottom is likely to be tested to make sure sellers are finally out of the way.  The VIX spike a week ago put the ‘fear of God’ into the bullish camp….as risk was re-considered after a long bout of complacency.  These things balance out in the long run, but make for rough waters in the interim.  For all practical purposes, there was a great deal of fear present….a record rise in the VIX.  So where does a V bottom occur?  This would be seen if a market drop was completely fearless….no rise in the VIX, no worries about a 4% drop….highly unlikely.  So, we test for a bottom and measure when sellers are done before launching another bull run.  In the meantime, the trend is likely to the downside.

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