Equity Tuesday : When The Bulls And Bears Collide

Long live Hindenburg !

The Hindenburg Omen reared to life on 18 September, the Ali Baba ipo day,  and did not disappoint with a market crash that was supposed to happen between 18 Sep – 28 Nov. https://tradehaven.net/market/equity-thursday-er-we-have-2-hindenburgs-thank-you-baba-us/

hindenburg Oct 2014

Yet history says bears always lose in the stock market because inflation would lift markets higher and inflation exists as long as the global population grows and gets richer.

S&P VS POPULATIONChart : S&P 500 and US Population

I was scanning around for some inspiration when I stumbled on an strange phenomenon.

The AAII (American Association of Individual Investors) Bulls and Bears indices are both loading up simultaneously.

AAII BULL BEAR SYNCHRONY1http://www.aaii.com/sentimentsurvey

This is rare because Bulls and Bears should usually be mutually exclusive, ie. if bulls increase, bears should decrease, but in this case, we are having more bulls and more bears at the same time, at the expense of the “neutrals”. Do note how the 2 lines almost mirror images for most of the time.

Well, we know that bulls and bears cannot be fulfilled both at once therefore this means we are headed for a collision course just like the yellow circle earlier in August this year where the bears gave up for the S&P to break  its record high on 19 Sept this year.

Meanwhile, it is worthwhile noting that the E-mini S&P futures held on to their longs throughout this period as opposed to the normal S&P futures which dipped after the September peak. The E-mini’s typically represent the retail positions thus implying that the retail folks sat on their longs through the flash crash as the professionals exited and are now rebuilding their longs.

CFTC EMINI VS SPX

It would be really interesting to discover where the margin accounts are for the past 2 months given the record high leverage of the stock market in August.

Source : NYSE Market Data

Source : NYSE Market Data

 

The stock market bounce has been fierce in the past 4 days rising some 4.5% from the lows of last week and we are the 1905 magic level that Bernie pointed out earlier this month. https://tradehaven.net/market/ad-hoc-commentary-is-1905-a-bear-trap/

In all, the superb earnings season we are having, accomodative central banks and the strong USD have played a part in helping the world forget about the end of QE3 next month, Ebola and geopolitical unrest.

Retail investors have sat through this and the Bulls and Bears have come out in force, setting themselves up on a collision course.

Because before May this year, S&P 500 at 1905 was just another wild dream for investors. And in October, 1905 becomes a crash ?

Have a Happy Diwali !