Salmon Run

The 200 MA is considered to be the den of the bear and the major indexes I follow, the Russell, SPX and COMPQ are swimming in these waters. At times like this the general chorus of the market being oversold and due for a bounce begin to ring loudly. Additionally there's discussion about the market's fear index, the $VIX, being very low considering the extent of the correction thus far. It's worth keeping in mind that fear is not a logical process that can necessarily be modeled exactly, but more of an event. There are two situations where fear can often arise: an event after prolonged anxiety, or suddenly like encountering a bear around a blind bend.

Thus far there hasn't been a singular black swan type event to trigger panic, but there has been plenty of signs of anxiousness. Most traders have a long side bias which makes sense since the market has historically had a long side bias as well and there is more profitability to the long side than short. Through observation of myself I've noted that as markets drop I become more optimistic and begin to look for information to confirm this bias. Through observation of other traders I've noted that trend lines of support tend to drop along with the market, as do the moving averages used to gauge where the next level of market support is.

In anxious markets it's crucial to keep an honest assessment of probable outcomes. It's well documented what occurs to markets after the election of an incumbent president so this drop was not out of the ordinary based upon historical data. In addition we know that breadth has been waning, earnings decelerating, and uncertainty about taxation and policy decisions are effecting mindset and decision making. Healthy markets tend to shrug off bad news, but sickly markets are vulnerable to a sneeze upon a return key that fat fingers a cascade.

One of the benefits of trading in this era is the accessibility to Market Wizards and Turtle Traders who are willing to share their experience. After the market closes I like to go through some of their tweets and see if my analysis is in line with theirs or if they are offering insight from their decades of experience in various market conditions. Today I came across two noteworthy tweets from Mark Minervini worth documenting.