Human behavior never changes, and when it comes to money, we use the scale of fear and greed. These emotions are like the yard lines and boundaries of the football field – we can clearly see the moves play out in the stock market thanks to charts, technicals, and sentiment indicators.
So far in 2014, sentiment is showing far more fear than greed. Is that an indication of something to come?
A recent surge in volatility due to various issues has caused a little weakness in the knees of the bulls. During 2013, the bulls were emboldened and bought at every dip, no matter how painful those dips were; the bears are just waiting for their moment. It’ll come at some point, but who wants to make that timing bet? Since January 2012, the market correlation bubble has been contained. Coincidentally, that is when the VIX really started to decline.
As a technician, I look for repeatable patterns and play them; they provide me with the highest probable odds of success (based on the fact human behavior does not change). In 2013, many traders became conditioned to buy that dip – and it usually worked.
But what happens when patterns are no longer reliable? Real Money Contributor Helene Meisler reminds us often that the market teaches us … and then all of a sudden it changes. If that is indeed the case, we may once again see failure and more downside. But first, I will wait to see if that is indeed the case.
Is the recent news a cause of the market downturn, or is it just an excuse? I don’t believe we are looking at economic issues that cannot be overcome, but with major economic problems in Greece, Portugal, Ireland and other countries, there is cause for worry (and the market is reflecting it!). Markets certainly are on shaky ground, which leaves us asking if this just another dip to buy, or is this a change in character?
Bull markets don’t last forever. Let’s remember that there are a million reasons to sell but only ONE reason to buy.
