Complacency in the Midst of a New Trading World – Trend Following

There seems to be massive complacency. Most market participants have forgotten the dark days of 2008. The Vix has reached multi year lows. The word today is leverage. Risk is fine. Yesterday we had the first down day of more than 1% in countless days.

The stock market basically got whacked yesterday. After opening higher it looked like the major averages would have another fairly quiet session with an upside bias. This has been the norm, dull and boring. The Nasd averages even broke above their recent consolidations which was very surprising. There was then a reversal and all the major averages sold off hard into the close. The losses were significant with the COMPQ falling 1.82% while the SPX declined 1.24%. The greatest damage was done to the small cap and the semiconductor stocks. The RUT and the SOX declined 2.71% and 2.36% respectively. All the major averages closed at their intraday trading lows, showing little buying interest as prices fell. Volume was much higher across the board and above average on both exchanges. Higher volume signifies conviction. This means that large institutional players were selling stocks and added a new distribution day to all the major averages. Leading stocks were hard hit. On the Globex now the market is still in the red.

All too many have been buying the dip. The stock indexes could recover, but the kind of reversals we saw yesterday are often seen near inflection points where trends can change.
This is what trend following is!