Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $10B AUM, offering volatility management solutions to its investor base worldwide. Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business

since 2008, sending it daily shortly after the market close.

---

The opinions expressed below are my own

Dip-buyers gonna dip-buy. The nice thing about psychological markets is that all you need to know about them is the psychological state of the market.

Of course the tough thing about psychological markets is that all you need to know about them is the psychological state of the market.

So get the sentiment call right!

LOL, if only that were easy.

Before we dig into the day’s conversation let’s just state a couple of facts about the day:

• Trading was HEAVY (220% of the average daily flow today)
• Volatility was high (the high-low spread for the S&P today was 4.1%)
  • That’s in the 98.6 percentile going back to 1982 (only 182 sessions had a bigger intraday range)
  • Yesterday’s spread was 4.5% so while yesterday got all the mini-flash-crash attention, it was essentially the same as today

• Treasury yields climbed
  • Unwind of the flight-to-safety reaction yesterday
• The morning was ugly (S&P off about 2.1% shortly after the open)
• We went back-and-forth for most of the day
• Bulls took over from 2:30 PM into the close

That’s the basic run-down of the day. There wasn’t much to explain the action in terms of news and headlines. This all looks and feels like sentiment-driven movement and technically-driven movement.

The dip-buyers counterpunched today. The bravest and most conditioned dip-buyers walked right into the fire and turned the tape. Kudos to them.

What are the more timid dip-buyers going to do

tomorrow

?

Probably they will chase the tape higher.

I don’t know how much higher. At some point, all the drags that started this selloff will return. But because we’re in sentiment-only land, rates don’t matter for the moment and valuations don’t matter for the moment.

When those things matter again, I think the upside party is going to end again.

We’ll see when that happens.

We are not out of the woods. We are simply witnessing the slugfest between the bulls and the bears. Emotion is the only thing that matters right now. Predict that, and you’ve predicted everything.

I think that this dip is not to be bought. Let someone else carry the water.

Best thing to do, if you can, is to sit on your hands and watch.

See you

tomorrow

,

-Mike