April 24, 2022

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Greed has proved to be one of the most potent motivators of thought and behavior since man has walked planet Earth.

We wrote several articles from 2017 to 2021 about greed-driven equity markets that have demonstrated behavior that students will study as examples of an equity market “top” for the next 100 years and beyond.

To list the most extreme of the greed-driven examples of the 2020-2021 periods would produce a list far too long to absorb in one reading.

So we will provide just the “Executive Summary” of the “Cliff’s notes” of those events and statistics below:

VIX registered the lowest fear in recorded history several times throughout 2017
The CNN/Money Greed Index at 95 reported its highest greed reading in recorded history on October 5, 2017
The NAAIM exposure level of Hedge funds registered its highest commitment in history in 2017 at 110% long (reached 105% in October 2020)

The Investors Intelligence Bullish Sentiment levels surpassed the unheard-of peaks of 1987 in 2017!

X- For the first time- The dollar Value of Options exceeded the dollar value of stocks traded during August 2020- by 114%. We do not have to look back at some historical Stock Bubble in history books to find this madness.

XX- Think about this: As billions pour into options every day, more than 75% of those $Billions are going into options of less than 14 days maturity! This level of pure, raw speculation makes the frenetic activity of the 1920s look like a peaceful Springtime walk through the park. If these are not earmarks of the top, we can’t even imagine what would be.

From above- February 2020 was the first time since 2015 that VIX closed above 15 at a new ATH SPX.

Then in August 2020, as SPX closed at new ATHs, VIX was above 20.

To repeat the above- when markets rise alongside the VIX, as is the case now: “Bad Things Happen.”

There are scores more extreme examples throughout these articles open to all on SevenSentinels.com and hundreds more in the archives:

The Answer To The Billion-Dollar Question

The TRUTH about the “Roaring Twenties”

A Tipping Point For The Ages

The Opportunity of a Lifetime

In the aftermath of this insanity, the question, “why?” How were traders seemingly hypnotized into such reckless and eventually self-destructive behavior?

The answer, of course, can be summarized into the exact four words that drove produced every seemingly impossible crowd behavior through the ages, for example:

The South Sea Bubble

The Tulipmania

The Roaring 20s Stockmarket Mania

The Dot-Com Bubble

Those four words described the contagion that had infected the crowd in each instance. It definitely describes the recent “traders of stonks:”

“This Time Is Different.”

(This time, that concept took the form of: “the Fed is invincible and will only let stocks keep rising”)

=====================================

Today, though, we will briefly discuss a motivator that is even more powerful in compelling human behavior than Greed. We will discuss the mightiest of all human motivators, FEAR.

Before we do, though, let us lay out two immutable laws of human behavior in market cycles that, when embraced fully, can put any “ordinary trader” like you or me into the “world-class trader” status.

Our trading careers depend on understanding these truths:

Every cycle PEAKS simultaneously with PEAK greed, the belief that “this time is different,” absence of fear, disregard of risk, and outright reckless and destructive trading behavior.
Emotions will reach EXTREME FEAR at the bottom of the cycle, equal to but opposite to greed.

These immutable laws apply individually to each Short-Term, Intermediate-Term, and Long-Term cycle.

Thus the equal but opposite level of FEAR that will reach its absolute peak for this entire Primary Bear Market will likely occur in 2023 or 2024.

{Think 1929 maximum greed/1932 maximum fear — 2000 max greed/2002 max fear, 2007 max greed/2008 max fear, as examples}

================================

Today, we’ll discuss where we are in the cycle of greed/fear for the Intermediate-Term decline underway.

We have been using this analogy to illustrate where we see the unfolding 2022-2024 Primary Bear Market by comparing it to this weekly chart of the 2000-2002 bear market.

Markets are just the first Intermediate-Term decline of a multi-year Primary Bear market. In very rough terms, we see the current market as about where we placed the Red Down arrow on the 2000-2002 cycle in February 2001:

Please do NOT interpret this as a roadmap for the next four weeks. It is intended ONLY for perspective- to show where we see the unfolding trend within the bigger picture.

We’ll now examine the Greed cycle since January 4, 2022, SPX intraday peak:

First, let’s deal with the elephant in the room- the surge in FEAR as displayed by the single-day CBOE Call-Put Ratio to 1.30 Friday and the CBOE Equity-Only CPC to 0.87 on Friday, April 22, 2022:

Fear skyrocketed Friday. So does that mean we’ve hit the bottom of this Intermediate-Term cycle?

Actually, no. Not by a longshot. We’ll explain.

Those FEAR numbers look so high on the one-year chart above because this has been a period of virtually no fear!

“One swallow does not a spring make.” One day’s fear does not a bottom make!

Let’s look at that very same chart on a 20-day moving average basis for the last ten years:

The current 20-day PCR at 0.985 is nowhere close to a bottom. The current 20-day Equity-Only PCT of 0.581 is nowhere near the bottom.

And the above statement would apply in “normal times.” but we were coming off of an extreme Greed level in December 2021.

Let us remember the “Truth #2” from above.

Emotions will reach EXTREME FEAR at the bottom of the cycle, equal to but opposite to greed.

The FEAR at the bottom will be equal to and opposite the level of Greed that began the cycle.

It has a LONG way to go between now and the bottom!

The following commitment level of the National Association of American Investment Managers shows the same complacency that is nowhere near what it will be at the IT cycle bottom:

Intermediate-Term bottoms have occurred when the NAAIM average commitment level on a 10-week moving average has fallen to below 40% long. It is currently nowhere near under 40. It is 64.66%! Again, lets us remember this truth:

Emotions will reach EXTREME FEAR at the bottom of the cycle, equal to but opposite to greed.

This requirement will likely produce a 10-week average near zero!

Bottom line: we are nowhere near FEAR levels that markets require at an Intermediate-Term bottom.. though we may get there much more quickly than most think possible!

The decline from here to the bottom will likely be fast and furious.

We suggest that serious traders prepare for a wild ride ahead even to the first IT bottom- with extreme volatility in both directions- sharp, vicious rips and fast record-breaking dips. But in terms of the emotional state needed to put in the first IT bottom-

FEAR still has a long way to go in this IT cycle.

We’ll examine the overnight Futures trading between 9 and 9:15 AM.

April 24, 2022

====================================

Greed has proved to be one of the most potent motivators of thought and behavior since man has walked planet Earth.

We wrote several articles from 2017 to 2021 about greed-driven equity markets that have demonstrated behavior that students will study as examples of an equity market “top” for the next 100 years and beyond.

To list the most extreme of the greed-driven examples of the 2020-2021 periods would produce a list far too long to absorb in one reading.

So we will provide just the “Executive Summary” of the “Cliff’s notes” of those events and statistics below:

VIX registered the lowest fear in recorded history several times throughout 2017

The CNN/Money Greed Index at 95 reported its highest greed reading in recorded history on October 5, 2017

The NAAIM exposure level of Hedge funds registered its highest commitment in history in 2017 at 110% long (reached 105% in October 2020)

The Investors Intelligence Bullish Sentiment levels surpassed the unheard-of peaks of 1987 in 2017!

X- For the first time- The dollar Value of Options exceeded the dollar value of stocks traded during August 2020- by 114%. We do not have to look back at some historical Stock Bubble in history books to find this madness.

From above- February 2020 was the first time since 2015 that VIX closed above 15 at a new ATH SPX.

Then in August 2020, as SPX closed at new ATHs, VIX was above 20.

To repeat the above- when markets rise alongside the VIX, as is the case now: “Bad Things Happen.”

There are scores more extreme examples throughout these articles open to all on SevenSentinels.com and hundreds more in the archives:

The Answer To The Billion-Dollar Question

The TRUTH about the “Roaring Twenties”

A Tipping Point For The Ages

The Opportunity of a Lifetime

In the aftermath of this insanity, the question, “why?” How were traders seemingly hypnotized into such reckless and eventually self-destructive behavior?

The answer, of course, can be summarized into the exact four words that drove produced every seemingly impossible crowd behavior through the ages, for example:

The South Sea Bubble

The Tulipmania

The Roaring 20s Stockmarket Mania

The Dot-Com Bubble

Those four words described the contagion that had infected the crowd in each instance. It definitely describes the recent “traders of stonks:”

“This Time Is Different.”

(This time, that concept took the form of: “the Fed is invincible and will only let stocks keep rising”)

=====================================

Today, though, we will briefly discuss a motivator that is even more powerful in compelling human behavior than Greed. We will discuss the mightiest of all human motivators, FEAR.

Before we do, though, let us lay out two immutable laws of human behavior in market cycles that, when embraced fully, can put any “ordinary trader” like you or me into the “world-class trader” status.

Our trading careers depend on understanding these truths:

Every cycle PEAKS simultaneously with PEAK greed, the belief that “this time is different,” absence of fear, disregard of risk, and outright reckless and destructive trading behavior.

Emotions will reach EXTREME FEAR at the bottom of the cycle, equal to but opposite to greed.

These immutable laws apply individually to each Short-Term, Intermediate-Term, and Long-Term cycle.

Thus the equal but opposite level of FEAR that will reach its absolute peak for this entire Primary Bear Market will likely occur in 2023 or 2024.

{Think 1929 maximum greed/1932 maximum fear — 2000 max greed/2002 max fear, 2007 max greed/2008 max fear, as examples}

================================

Today, we’ll discuss where we are in the cycle of greed/fear for the Intermediate-Term decline underway.

We have been using this analogy to illustrate where we see the unfolding 2022-2024 Primary Bear Market by comparing it to this weekly chart of the 2000-2002 bear market.

Markets are just the first Intermediate-Term decline of a multi-year Primary Bear market. In very rough terms, we see the current market as about where we placed the Red Down arrow on the 2000-2002 cycle in February 2001:

Please do NOT interpret this as a roadmap for the next four weeks. It is intended ONLY for perspective- to show where we see the unfolding trend within the bigger picture.

We’ll now examine the Greed cycle since January 4, 2022, SPX intraday peak:

First, let’s deal with the elephant in the room- the surge in FEAR as displayed by the single-day CBOE Call-Put Ratio to 1.30 Friday and the CBOE Equity-Only CPC to 0.87 on Friday, April 22, 2022:

Fear skyrocketed Friday. So does that mean we’ve hit the bottom of this Intermediate-Term cycle?

Actually, no. Not by a longshot. We’ll explain.

Those FEAR numbers look so high on the one-year chart above because this has been a period of virtually no fear!

“One swallow does not a spring make.” One day’s fear does not a bottom make!

Let’s look at that very same chart on a 20-day moving average basis for the last ten years:

The current 20-day PCR at 0.985 is nowhere close to a bottom. The current 20-day Equity-Only PCT of 0.581 is nowhere near the bottom.

And the above statement would apply in “normal times.” but we were coming off of an extreme Greed level in December 2021.

Let us remember the “Truth #2” from above.

Emotions will reach EXTREME FEAR at the bottom of the cycle, equal to but opposite to greed.

The FEAR at the bottom will be equal to and opposite the level of Greed that began the cycle.

It has a LONG way to go between now and the bottom!

The following commitment level of the National Association of American Investment Managers shows the same complacency that is nowhere near what it will be at the IT cycle bottom:

Intermediate-Term bottoms have occurred when the NAAIM average commitment level on a 10-week moving average has fallen to below 40% long. It is currently nowhere near under 40. It is 64.66%! Again, lets us remember this truth:

Emotions will reach EXTREME FEAR at the bottom of the cycle, equal to but opposite to greed.

This requirement will likely produce a 10-week average near zero!

Bottom line: we are nowhere near FEAR levels that markets require at an Intermediate-Term bottom.. though we may get there much more quickly than most think possible!

The decline from here to the bottom will likely be fast and furious.

We suggest that serious traders prepare for a wild ride ahead even to the first IT bottom- with extreme volatility in both directions- sharp, vicious rips and fast record-breaking dips. But in terms of the emotional state needed to put in the first IT bottom-

FEAR still has a long way to go in this IT cycle.

We’ll examine the overnight Futures trading between 9 and 9:15 AM.