Negativity Creates Opportunity

Yesterday the indices put in another real distribution day. Since the indices had sold down to support levels on Thursday a distribution day at support cannot be a good thing if you are a bull. As we said yesterday, we are not strongly biased about this market. It has in the recent past sold off below support levels only to recover and follow through with new gains. Even so, we are glad to see some real volatility return. The VIX has broken above its $15 resistance indicating some real emotion has been injected back into the game. This market is one that has been limping up to test support over the past year and over the past few months has experienced a noticeably decreasing level of breadth as fewer and fewer stocks participated in the gains. Now that we are getting some downside movement breadth has returned to 2-1 participation in the move. The key point to understand here is that the market is moving and that is a very good thing. We are not ready to use the word bear market here, but, keep in mind that bear markets create some of the best bullish bounces and provide for some of the best trading opportunities on both the long and short sides as prices oscillate on extreme fear and speculation. So, if the market does in fact not break out to new highs as we speculated last week, a break down to past lows can provide as many or more trading opportunities. Anything is better than a lazy trading range.