Last week, I said that HEDGEfolios had become Less Negative. Since it was brief, here is the whole thing…

As I hinted this weekend, I gave quite a few UP signals this week (461) versus 98 new DOWNs. I was asked whether this meant I was calling for an intermediate term rally. The short answer is “NO” - not because I don’t believe it could happen but just because I don’t like calling bottoms or tops. It’s all about the probability of market direction and right now, I am still bearish. However, based upon the strengthening technicals I saw in so many stocks, I have become less negative in the short term (especially on those individual stocks). Obviously, the fact that the market has dropped another 2% since I decided on these signal changes doesn’t seem to validate my declining bearishness. Fortunately, I don’t measure performance based upon a few days and I am willing to give it some time to play out.

I gave it some time to play out and the rally reappeared. I only wish I had been even more aggressive last week.

Despite my opinion that I don’t think the impetus for the rally was earned by the bulls, when I went through all the charts this weekend the reversals were overwhelming in both stocks and ETFs. So while the bulls may not have started it, they sure are providing a lot of momentum to keep this thing going. I don’t like rallies begun through government interventions or short squeezes or crappy earnings spun as beats or crappy earnings ignored in exchange for positive guidance from execs who have been consistently wrong with the same promises in the past or many of the things that are going on right now. But they are what they are regardless of what I like.

This week’s signals are the strongest bullish reversal ever recorded at HEDGEfolios. I gave more UP signals than I have ever done in 1 week. 1056 new UPs. And the ratio of new UPs to new DOWNs was also an extreme I have never done. 21-to-1. Normally, I try to avoid making a lot of signal changes through earnings season. Obviously, I made an exception this time.

Additionally, I had a massive reversal in ETFs with 188 new signals (183 new UPs vs 5 new DOWNs)

If you missed what these things mean to me, please read my take on Measuring Volatility. Additionally, you might want to see what is going on with the HEDGEfolios Timing Indicator and it’s move to a bearish bias. The reversal from an extreme bearish reading to an extreme bullish reading in a matter of a few weeks is something that I have never seen before. So until I have had a chance to think this occurrence through, I am not going to speculate whether it has any additional meaning other than this is one strange reversal.

For the record, I don’t expect this bear market rally to last BUT I do expect the volatility to continue. Remember, next time it will be painful in the other direction.

In the meantime, if you are long….enjoy the fun while it lasts. For all the shorts, good luck!