My Dow Dilemma
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As you know, I pay utmost attention to market sentiment and quote the COT data, the DSI polls of money managers and MSM headlines and magazine covers (see 8 September post on the Barron’s Bottom in Alibaba).
But there is another sentiment measure that many traders avidly follow – and that is the numbers of searches in google for various terms. I have just come across this Bloomberg article that reviews the history of the bullish term “peak oil” and the bearish term “too much oil“. It is titled “Here’s One Sign That Peak Oil Is Dead“.
Google searches of a popular term is used by some algo traders to indicate when a market is getting out of whack. It is today’s tech equivalent of the 1920s observation that when the shoeshine boy gives you a stock tip, that is a sign to start going the other way.
And they helpfully post a chart from 2004 that plots the occurrence of the two terms:
If you recall the period 2004 – 2008, everyone was talking about Peak Oil. A famous oil engineer published a study that ‘proved’ the world was running out of oil and that over the next few years, the ratio of supply to demand would drop like a stone. Prices would rocket to the moon. This was the ‘story’ that the herd bought into.
And that concern showed up nicely in the google searches as the scare went mainstream. Naturally, we all know now that the high prices did what high prices usually do – they stimulated exploration for new supplies. And lo and behold, the shale oil revolution was born. And prices collapsed to around $25 – a far cry from the moon!
In fact, the term “Peak Oil” was better applied to the oil price rather than the supply/demand curve!
But the other interesting feature of the chart is the (dark blue) curve of the term “too much oil”. This term reflects today’s belief that with the build-up in inventories, we have too much oil and the price is headed down.
Note how the blue line has now crossed up over the yellow line to reflect this bearish sentiment. No-one talks about Peak Oil anymore, do they? But should they?
With this kind of bearish sentiment, I maintain my ultimate target of the $60 area before the bear can take over.
US Stocks in a tizzy
On Friday, the market was convinced the Fed would signal a rate increase and yesterday, it was just as convinced it would not. The Dow collapsed by 400 pips on Friday and rallied 300 yesterday. If you ever wondered what a manic-depressive market looks like, this is it
But that little rollercoaster action fits right in with one of my possible roadmaps. I have Friday’s dip as my c wave and also wave 2 down. If this is correct, when the current correction ends, the market should rally off one of the Fib levels as marked. It will then be in a strong wave 3 up to new highs.
But that is only one scenario I am looking at. Here is the other contender on the daily:
In this scenario, the entire rally from Feb 15 is a complete red five up and red wave 5 is also a complete five up. From last week’s wave 2 high, we are in a long and strong wave 3 down.
As always, when we are in a third wave, it is not immediately clear whether we are dealing with a c wave (reversal ahead) or a third wave of a five (continuation of trend).
And that is my dilemma today.
In terms of sentiment, money managers are steadfastly bullish while retail investors are extremely cautious. And the important Fed meeting is next Wednesday and trading up to (and past) that date will be volatile.