S&P 500 Update : Do You Feel Lucky?

I like to simplify things when I can. Usually, too much complication leads to analysis paralysis and even faulty analysis. An example I have used before on here is the use of investment sentiment. Seventeen different investment sentiment indicators that are all measuring the same phenomenon - price - doesn't make an analysis seventeen times better. It might make the person measuring seventeen doodads feel better but the reality is you have one data point - price - that has been incorrectly believed to be confirmed by seventeen other dependent variables measuring the same thing. When the market drops ten to twenty percent in a short period of time, I don't need seventeen doodads to tell me there is negative sentiment in the market. Price tells me all I need to know. This failure to understand this simple mathematical reality that is the reason why so many traders were on the wrong side of a collapsing market in 2008. Many quoted negative sentiment data point after data point as a reason to buy. Most spent 2008 drawing down capital by attempting to buy false bottoms and failed rallies while few actually profited from the decline. Yet, all anyone really needed to do to profit from the decline was listen to price. It was that simple. And we said three years ago this very fact would eventually come to pass. That is, buying dips using sentiment would fail.

When I said on in my opening post for 2009 that equities were the most overbought in six months, I base that on a proprietary intraday analysis. Yet, one could look at any number of data points including something as simple as the number of stocks advancing using data found on Yahoo or Barron's.

It has been years since we explained Volume at Price on here. Yet, it is one of the simplest yet least used or understood technical tools. Above is the Volume at Price chart for the S&P over the last two months. During that time most every professional on Wall Street has called a bottom at one time or another. Maybe they are all right. Maybe they aren't. The chart shows the S&P with volume on the right in horizontal bar form. The volume is printed at corresponding price levels over the last two months. In other words, it is a graphical representation of who was buying or selling the S&P and at what price. Volume at Price interpretation is not so simple but for this post let's keep it simple because the nuances really don't matter. What does matter is that to move higher from here requires someone to be so confident that they are willing to buy above prices paid by any other buyer over the last two months. There is no volume at higher prices. Of course, we could also conclude by simply looking at the chart there is no price above this level either. This during a time in which the market has already rallied at an annualized rate of 200%. And to do so in the most overbought market in the last six months. It's that simple.

Do you feel lucky? Well, do you?