5th Times a Charm?

Above are the 5 major "Dow Theory" indicators I check for major trends: VIX, Dow Jones Industrial Average, S&P500, Oil, & NASDAQ. Notice each graph has 3 - 5 major bounces on a single trend line.

What's the concern? NASDAQ is the only index who has broken its major trend and and it will now be utilize as resistance. Additionally, oil can not break above $80.00 a barrel. Furthermore, the VIX is at a pivotal price point. All this information tells me there will be a correction soon. As the DOW begins to fall towards it's 5th bounce it most likely will break through. The S&P will follow suit breaking through it's 6th bounce on the major trend line.

Since March the market, as I describe it, has been drinking Red bull and Monster Energy drinks daily. It's time to come down from this surgery caffeinated high... Psychological studies have shown that humans love to watch people fall from the top, I don't think the market is an exception here. This is one of the psycho-market theories.

Why Are The Poor So Spend Happy?

We're in the mist of the mid-day trading session and I can't help but to noticed the amount of advancing stocks. The DOW is up, the S&P 500 is up and NASDAQ is advancing (http://finviz.com/). Normally this correlation doesn't startle me in today's market, however after reading the poor economic numbers that blew past analyst estimates, it does.

International Trade smashed through census estimates at -32.5 billion coming in at -36.5 billion. The U.S. year over year exports dropped 3.4%. Natural gas inventories dropped to 25 billion cubic feet from 29 bullion cubic feet. Finally, consumer sentiment plummeted! Annihilating census estimates of 71.0 coming in at 66.0. However, the market is up! (http://www.bloomberg.com/markets/ecalendar/index.html)

I relate this to bad psychological defense mechanisms. There is no fancy title for this pathology, plain and simple, it's over compensation (some may call it reaction formation [that's a fancy title]). In other words, since the reality of the situation is to harsh to accept (consumers feel terrible, inventories are down, large possibility of low holiday spending) we create an alternate reality/feeling that is much easier to accept. In this case, poor economic numbers indicate an unacceptable reality so the market is now over compensating by buying up more assets. Unfortunately, this is not the TRUE reality of the situation, only a pathological defense.

In short, stocks going down would be an appropriate response to such bad news, stocks going up after such bad news, is simply pathological.