Time to buy?

SGG has been holding  sectors/index long short arbitrages but is it time to unwind the “Shorts”  and go long?

Timing the market is hard and often is painstaking since contrarian stakes are not easily accepted.  SGG missed a piece of the equity rally.Too many divergences were indicating that the foundations of a sustainable rally were kind of shaky.

SGG believes that so far, the sharp correction looks more like a “slope of hopes”. When we look at the next chart, a true capitulation does not seem to have taken place yet.  Looks like investors are still holding onto their positions since the hopes that a reversal of fortune is in the cards. “Down volumes” have not yet reached extreme sentiments which could create the foundation of a true “wall of worry” sustainable rally.  In other terms…. the BTFD (Buy the F.. Dip) modus operandi has not yet been replaced by STFR (Sell the F… Rally).

What could trigger such a capitulation?  The longer price action seem stuck within a trading range, failing to provide comfort to investors that a true price recovery is underway, the more probable a capitulation is possible.

The next chart is the S&P 500 cash index. The green line is the OBV (On balance volume) indicator. The positive side is that the current sell off looks more as a “normal” correction /pull back within a longer term bull market.  Failing to hold onto the current support (red line) could indicate that more dramatic price actions are in store. Currently, such technical support is a “buy on weakness” invitation for more agressive buyers but tight stop loss limits could feed the selling pressure in case of failure.