01/20/2012 Market Outlook (OEX Open Interest Ratio Record High)

SHORT-TERM: MAY SEE PULLBACK SOON

Three cents:

1. SPX could close below the Friday’s close within 2 days.
2. A bigger correction should be around. But, again, don’t front run because I don’t see any reliable top pattern yet. Nowadays the market tends to go extremely extreme, so front run based on signals or statistics are dangerous.
3. Because FOMC announcement will be on Jan 25, normally, there wouldn’t be any meaningful pullback before that day, so  the “bigger correction” might happen after Jan 25. Should the signals become even more extreme on Jan 25, off the record (because I officially against front running), I personally think this would be bear’s good opportunity.

Let’s see chart pattern first.

Could be an Ascending Triangle in the forming, so chances are it’d breakout on the upside, at least more likely up on Monday morning. This is why I said I don’t see top pattern yet.

On a little bit bigger picture than Monday intraday, from daily and weekly chart:

1. SPX is testing the primary bear trend line.
2. The Thursday volume surge may mean bear capitulation.
3. There’re some chances that the weekly bar is an exhaustion bar.

So the daily/weekly chart argues for a short-term pullback.

Now let’s take a look at signals. Why there’d be a pullback within 2 days? Why could a bigger correction be around soon?

• OEX Open Interest Ratio is at record high (at least 2nd record high) now. This is the major reason I believe a bigger correction is around.

• T2112, % NYSE stocks 2 Std Dev above MA(40). When this signal was on the way up, rarely it had 2% pullback, which if so, then it could mean the high was in for T2112, therefore implying a bigger correction is ahead. In addition, the back test summary shows 84% chances we’d see a pullback within 2 days.

• AAPL is interesting, a sudden 1.5%+ drop on a strong way up usually leads to a big correction on QQQ.

• ISEE Indices & ETFs Only Index closed above 100 again which could mean a pullback within 2 days.

This is just to follow up what I mentioned in 01/19 Market Outlook. Normalized CPCE, becomes extreme now but still not extremely extreme, so let’s wait for a few more days.

VIX might rebound the next week because VIX:VXV is way too low. It doesn’t always mean SPX would pullback too though. The reason I mention this is I know some of you bought TVIX, so if deeply underwater now, be patient, there could be chances in the coming weeks. In addition, from the VIX buy to open call/put ratio, chances are high the rebound of VIX might translate into a correction on SPX this time.

INTERMEDIATE-TERM: WILL REASSESS AFTER NEW YEAR

The latest intermediate-term forecast was in 11/18 Market Outlook

Chinese Translation

SHORT-TERM: MAY SEE PULLBACK SOON

三个结论：

1. 最快两天内SPX会收在周五的close以下。
2. 比较大的回调可能就在眼前了。但是，还是老话，不要抢跑，因为我没有看到price pattern确定顶部。现在的market趋向于go extremely extreme，所以单凭信号或者统计抢跑是很危险的。
3. 关于比较大回调的判断，由于FOMC announcement在25号，一般在此之前不大会有大的回调，所以多半要到25号以后了。如果到25号的时候，信号更加extreme的话，off the record，我个人觉得是熊熊的好机会。

先看chart pattern，可能是个Ascending Triangle，因此向上突破的几率比较大，周一早盘可能还有的涨。这个是我说没有看到top pattern的原因。

稍微大一点点的方向(other than Monday intraday)，Daily和Weekly图看：

1. 正好在测试primary bear trend line。
2. 周四的volume surge，可能意味着bear capitulation。
3. 不排除weekly bar是exhaustion bar的可能性。

所以稍微大一点点的方向，daily and weekly chart 支持短期会有回调的说法。

下面看看信号，为什么我说最快两天内会有回调？为什么我说可能比较大的回调就在眼前了？

• OEX Open Interest Ratio是record high了(at least 2nd record high)。这是我说可能会较大回调的主要理由。

• T2112, % NYSE stocks 2 Std Dev above MA(40)。这个一般上涨的途中是不会有2%以上的回调的，一旦有的话，可能意味T2112 high was in了，因此多半意味着要有较大的回调。另外，从back test summary看，两天内回调的可能性高达84%。

• AAPL很有意思，向上猛涨的过程中，突然出现1.5%以上的下跌，往往是QQQ大回调的前奏。

• ISEE Indices & ETFs Only Index又大于100了，这个是说2天内会有回调。

Normalized CPCE，follow up一下01/19 Market Outlook。Extreme了，不过还不是extremely extreme，所以再等等看吧。

VIX:VXV too low，因此VIX下周多半会反弹。这个，当然并不意味着SPX一定会跌。因为我知道很多同学买了TVIX，所以如果深度水下的话，就忍一忍吧，下周也许有机会。另外，从VIX buy to open call/put ratio看，这次VIX反弹意味着SPX要下跌的可能性还是比较大的。

INTERMEDIATE-TERM: WILL REASSESS AFTER NEW YEAR

The latest intermediate-term forecast was in 11/18 Market Outlook