Market summary

Some notable observations of late:

• Whilst market closed higher yesterday, cumulative ticks finished sharply lower a sign of institutional selling. No surprise we are bit weaker today.
• Lots of intermediate term signals have triggered according to my quants including new highs versus new lows, the major indices at multi month highs and some strong cumulative tick readings (ie +70,000 just last Friday when the market finished flat to down).
• Volatility is getting crushed. VIX versus VXV ratio is below certain bearish thresholds in the past. A low VIX to VXV ratio implies that the market is pricing higher volatility in the future (short term versus long term view of volatility)
• CBOE put to call ratios getting very low (below 0.60). A symptom of the overall bullishness of this market.    

Overall, the signs are there that the market is getting complacent and it has definitely priced in some type of QE2 from the Fed. The big question is how much? It could be a case of buy the rumour sell the fact as we get closer to the next Fed meeting on November 2nd to 3rd so keep those dates handy.

Lots of market participants are expecting some sort of a correction/pullback here. I don't think this will happen probably till after the FOMC meeting so I'm expecting a 3-5% pullback in early November. I think there is a very good chance given the pervasive bullishness that the market will bounce back strongly from any sell off as there is probably a majority of people out there waiting to buy the first real dip. I think a run up to retest the April highs is now well on the cards. After that who knows but one thing is for sure, this market is being conditioned or forced to be bought by virtue of the fact that as far as alternatives go, there is no where else to park your money especially when the central banks are hell bent on creating some kind of asset inflation. We would need some type of geopolitical event such as another sovereign debt crisis to spark some real selling in this market. Funny how we haven't really heard anything more about this in the media even though the underlying problems still exist. Anyway that's how the herd mentality of investors go. Out of sight, out of mind.

My best bet and plan is to sell volatility and go long deltas on any decent sell off. Not a bad idea to buy some cheap call spreads here either.