I often talk about the need to focus on markets and the price action, ignoring the noise from the crowd. Doing will often help you sidestep dangerous advice designed to twist your mind. We can consider all the excuses or reasons for selling – there are a million of ’em – but at the end of the day it is the market action, the effect and not the cause that will be our guide. The first step is understanding the technical condition, sentiment and indicators. These will always point the way.
Lately, the rhetoric surrounding the Greek situation has risen to unprecedented levels. Each press conference, statement and word is over-analyzed and put into some context. That, by the way is probably a wooden box for Greece. Something is going to happen here over the next few days. Whatever the decision between Greece, IMF, ECB and the Eurozone – what matters to me is how the market is doing, period. Taking an objective view is the best way for me to make the proper decisions without emotion or bias. It is when I insert my opinion or belief before my actions in trading markets is where I get into the most trouble. The market is sanguine about it and not too concerned, and at this stage of the game that should not be a problem.
The fact remains, there is NOTHING we can do as market participants to sway the verdict in one direction or the other. We can buy protection in case of a disastrous outcome, but those bets are not counted on to pay us off. I suspect the Eurozone has been preparing for a fateful ending with Greece for some time, So it doesn’t seem to be an event they are too concerned about.
One thing is for sure. The comments and rhetoric from those outside of Greece are going to scare anyone/everyone who is listening into making the wrong move. All I have heard lately is opinion about how things will be when this is over: Greece is done, Europe is in trouble, the entire World will pay the price. How nice, except the markets are not saying any of this opinion is fact.
So, let’s take a look at the market facts and interpret what it means for future. First, the VIX. This indicator has reflected complacency for months, and while the depressed final number (closed at 14% Friday) seems low the angst continues to be felt. When the VIX falls to the 12 level it has marked a low in the indicator and short term top in the market. All the indicators on the VIX are in the middle, not reflecting an edge to either bull or bear. I talked about it on twitter and realmoney.com last Tuesday (see the chart).
The McClellan Oscillator continues to flirt with the zero line and while it’s been straddling it there is clearly no trend here. Put/calls reflect hesitancy without any solid bets in either direction. Polls are split too, with many tilted toward neutral, taking a ‘wait and see’ approach. That is not bearish! Finally, looking at the chaikin analytics for bit, we see more names in the neutral camp than we have seen in quite some time, well more than bullish/bearish. This tells us the same is being said by traders/investors – wait for it.