RSI & VIX @ historic levels....WHY ????

RSI in S&P 500 is @ historic level in 75 area only reached in July 09......In July we were coming out of historic downtrend in markets seen in march 09.....it was predicting then that "all is NOT wrong with economy" with stimulus kicking in worldwide......

NOW...we are 8 months into massive stimulus propping economies worldwide ..with relative gain in GDP......

As was back in March of 09...stock markets were looking ahead so RSI of 26 in March was reflecting "too much pessimism"...so we vaulted from 26 RSI to 75 RSI in 6 short months.....

Then again over optimistic scenario by investors resulted in RSI from Aug 09 to make lower highs & lower lows .....resulting in Feb 10 lows of RSI 30 area.......

THEN...from Feb to March 19th in short 5 weeks we shot UP from low 30 to 75 RSI...fastest jump in any 5 week span.......

SO...S&P 500 went from 1044.50 to 1169.84 a jump of 125.34 points or 12% in last 5 weeks......

Any jump like this anytime in the last 15 months has brought a quick correction...sometimes it is a "rolling correction" means lower highs & lower lows for several months until pessimism is entrenched.......

Based on seasonality & sharp RUNUP we had since March lows when we were @ 666 to current high of 1169.......that IS a gain of 503 S&P points or a gain of 75.53% in a year.......

S&P 500 has moved to a normal valuation based on historical averages......

SO.....from here we WAIT for "above average GROWTH in worldwide GDP"

There are MANY POTENTIAL headwinds for the short term for markets to digest...namely :

-Stimulus will come out by end of the year....

-Interest rates will be hiked worldwide...Australia,India, has already done it..to be followed by China,US,Canada......

-VIX is @ series of record LOW...never a good sign for markets.....sign of TOP.....

-US healthcare fallout will affect policies in future..so less focus on economic issues BUT more on politics & compromise......

-Inflation is a major concern in China,India & rest of the world...means pressure on interest rates....

-Rising interest rates means stock market will be UNSURE of economic growth...so another long digestive process for the markets.....discounting mechanism will trigger.......

Based on the above REALITIES......it is important for traders NOT be "over confident" with their trading abilities......

I CAN...very easily see that markets will be under pressure till mid September.......a long 6 months of basing period for the indices.........

Range of the market will depend IF rising interest rates will IMPACT GDP numbers......

Some of the ROSY GDP growth will be TEMPERED.....

SO......it is PRUDENT to be extremely DEFENSIVE & actually position to GAIN from Market DECLINE...

Nobody can predict the EXACT lows or highs of the market in any time frame..BUT I have done a reasonable job in predicting turns & sometimes even short term tops & bottom.......

Based on my PERSONAL interpretations of RSI & VIX......I have CHANGED my strategy to stay "extremely BEARISH" for short term.......

I will let the TAPE tell me when I should CHANGE my strategy.......

SO...I stay with APWR,VXX,QID........

What you should do is based on your OWN interpretation of TAPE......

LUCK will NOT help too much in this stage of market....no more lifting of all boats......

Even strong stocks are showing sign of quick pullback......

As we all have learned the hard way that ONCE the tide changes...it CAN become very painful for our portfolio......

I am 25% exposed to the market..with 50% bearish bet with VXX & QID & 50% bullish bet with APWR which has been beaten down to RSI of 41.17 trading @ Sep 07 level.....a 29 month low ???

Good luck with your OWN strategy & comfort level.....but remember do not fight for the last $$$.

BLOG does NOT give buy or sell.

Saleem