Thursday, July 22, 2004

The most troubling thing about yesterday was not the price decline, it was the REACTION to the price decline.  Put volume on the CBOE (minus QQQ options) barely increased yesterday, despite the trend day down.  Rydex traders shifted hardly any assets into the bear funds, particulary the leveraged bear funds, so there is certainly no scramble on their part to try to take advantage of more declines.  This is not the type of behavior we saw near the March and May lows.  As I suggested in the past couple of comments, the prevailing sentiment appears to continue to be that we will remain in a trading range, so traders are not becoming more bearish as we approach the bottom of the range.  While there is strong technical support very close by, and on a very short-term basis we are already extremely oversold in many of our measures (see the intraday charts), from a longer-term basis, we still don't have nearly as good of a sentiment base as we did at the prior lows this year.  A case could be made for incrementally adding longer-term long exposure around here, but I feel there will be a better risk/reward opportunity when the sentiment picture improves.  9:34:46 AM