Investing.com - Financial Markets Worldwide
Get 40% Off
Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious OutperformanceFind Stocks Now

Irrational Market or Strong Bull Market Trend?

ByKirk Du Plessis
Published 01/25/2012, 07:28 AM
Updated 07/09/2023, 06:31 AM

These past two weeks have been tough as an options trader. Differentiating between trading an a possibly irrational market or bull market trend is sometimes very difficult to assess. We all know that the stock market can push us to extremes and then, just when we “give up” and “give in” the turn happens.

Timing is really everything.

Irrational-Stock-Market

Blow-off Top or Pull-Back?

Most traders I talk to are in one of two schools of thought right now. Either you think this is the best shorting opportunity for the next 2 years or you are convinced that we are now in a new bull trend that could take the S&P 500 well above 1,500. It’s pretty much split down the middle honestly.

Whatever camp you are in there are some key stats that are glaring and cannot be brushed under the rug:

1) The VIX closed the week below 20 for the first time since last July.
2) S&P 500 is three standard deviation points above its 20-day moving average.
3) AAII Sentiment is near extreme levels at 47% Bullish compared to 29% Neutral and 23% Bearish.
4) S&P 500 contract short interest has declined nearly 32% – no more short squeeze?

Stick to Your Guns (And Indicators)

Will a top come soon? Maybe (hopefully) but who the heck knows right. I know I have been getting itchy to trade more as I’ve been mostly in cash for nearly a month now. Not that I don’t want to trade, but I think that better risk/reward ratios will come soon and I’d rather have cash on hand to make those trades.

During bull market trend’s like this I find that keeping an eye on the indicators is best. They can and often stay over-bought for weeks but eventually they do break and divergence will be the early warning signals. Look for momentum indicators to drift lower even though the market will continue to move higher.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

Install Our App
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.