Friday, April 30, 2004

Assuming we don't have a mad rush higher into the close, the NDX will mark the fourth day out of the past 5 of being down at least 1% (close to close).  This has happened 91 other times since 1985, and the NDX was higher 5 days later 71% of the time, with an average return of 2.6%.  This is considerably higher than average, though as a caveat this type of activity directly preceded the crash in 1987. Today's drop has already pushed the NDX lower than it had been the other times the STEM.MR model became extremely positive (per last night's comment), so we're seeing something different this time.  I certainly wouldn't press any short bets, but it's getting much more difficult to try to justify trying to pick the bottom here. 3:23:02 PM

Somewhat disappointingly, Rydex traders did not in the least panic with yesterday's decline.  To the contrary, our Rydex Enthusiasm Index, which tracks flows into the various index funds in relation to actual market performance, rose yesterday.  This means that instead of rushing to the short side, these traders as a whole instead decided to fade the move down and bet on a rebound.  That is a negative to me, as I would have much rather seen them abandon longs and jump into the short funds.  I still believe the risk/reward is beginning to skew to the long side, but perhaps there's more work on the downside yet to scare some of these marginal traders out of their longs. 9:29:53 AM