With Friday’s action, an ominous situation has arisen. Friday gave us two-consecutive volume bar sells signals in the broad indexes. Additionally, it gave us a Volume Tunnel sell signal with Friday’s close.
Furthermore, the “real” sentiment, as measured by actual, non-arbitrage-able positions in the market, the differences between VIX futures 7 months out versus those 4 months out, is at levels not seen since January 2018:
This is a short-term, ominous situation. The longer-term is grave indeed, as illustrated in previous letters. It’s time to get short immediately if you aren’t already so.
Regular readers know one of the things I have been harping on in this bear market rally we have been watching since last October has been margin dept numbers. I take the FINRA monthly margin debt numbers, and calculate the Free Net Credit Balances from.
This number moves opposite the market, so I invert the values, and, as you can see, these values top out before the market does. These values have been going up until this latest print this past week, which shows a sharp contraction in the inverted numbers, indicating we are making the top of this move since last October now.
Using the Bailout System with Volume Tunnel creates a powerful short term, mechanized approach which I will detail now.