This is a good thread. I like Easyguru's comment about no "spike event" yet. I have been on this GAP kick lately. There are a lot of open gaps below on the indexes. I have a couple corresponding to key fib retracements also. I know this is not a revelation, just couldn't think of anything else to say that hadn't been said. I am short Russell. Target 471.30. God help me. Event = One bad job report on a Friday.
Market is too difficult to read now, directionally. The best that the best can say is, it might go up, but it might go down. Posting a market call is a sign of uncertainty, I beleive, but very welcome. The low VIX, well, it really is not low anymore is it? I mean it has been in the teens for quite some time now, and the VIX is best as a short term predictor when it veers from short term moving averages, unless a bottom is being put in, like 7/02 or 10/2 when it spiked severely and veered suddenly from longer term moving averages. Then it was a good long term contrarian predictor. VIX and tops are much harder to spot. The VIX has been low relative to 2001-2002 for a long time now. There is no doubt that profit taking is on the agenda now, and there are moves into other stocks that have been off the radar.
I hope you are right, but remember, you are going against the probable trend. (election year, long cycle, etc.) The VIX could end up behaving like high Stochastics in a very stong stock. We anticipate a reversal but the stock keeps going higher and the Stochastics stay very high for an extended time. Other things to keep in mind are the money supply (m2, m3) which have been expanding for 6 weeks or so and this week it really grew rapidly. My perspective is for various individual stocks to consolidate and for more economic positive surprises. I recommend not fixating on a certain outcome or trying to prove you technical skill with an anticipated outcome (awfully hard on the ego), but rather make a new daily plan each day and then mold longer term plans as the future shows us her hand. Remain objective. Stay
First of all, the reason that the NASDAQ has been "diverging" from the S&P and the Dow is because in the later stages of a bull move, ( and well after the tremendous money supply injection of M3 that occurred in the late summer of 2003 ) there is a rotation out of high beta, high growth names which are native to the technology sector and into much larger blue-chip type "cyclical" plays; hence, the strength in the Dow and the relative weakness in the Nasdaq. This is nothing new and is a well documented historical phenomena by well known market strategists. Moreover, this is not a sign of weakness of the Bull. In fact, it is a key to the Bulls longetivity. While I might allow for a measured-move in the Nasdaq down to 1955 tops, I would be inclined to say that the semi-conductor names in the Nasdaq have already gone thru a pretty decent correction, with many names such as market and index leader Intel having already corrected in time ( 5 weeks ) and price ( 15% ). As for the VIX, anyone that thinks that today's close of 14.83 is indicative of a market that is about to head South in a major way needs to look at market history. The VIX traded in a range of between 18 and 45 from early 1997 till mid 2003. In mid 2003, the VIX broke the 18 level which it had bounced off of for nearly 6.5 years. If you had taken this as a sign that the market could not go up any further, you got blown away. In fact, the last 6 months of 2003 saw the VIX collapse from the 23 level to roughly 15 and the Nasdaq went from the 1350 level to 2190 for approximately a 50% move! If you seriously believe that the market cannot go up any further from here because the VIX is far too low, you obviously have not been around the markets very long. Simply take a look at 1992 and especially 1993 in which the VIX traded in a very similar, long drawn-out downward progression to a low of 9. Furthermore, to go short at today's Nasdaq close of 2,032 let alone allowing for a few more upward sessions to "scale" into a short position on the Naz with say an average price of 2050, why would anyone even wish to use a buy-stop of 2100 that is 2.5% away? In my book, that is being wrong for far too long. As for interest rates, the long bond is showing a tremendous amount of "bid" to it, even in the face of continually rising oil prices, a huge move in the metals ( copper at 6.5 year highs, silver as well ), and grain markets with soybeans having surged almost 80% since September of last year. However, the 10-year bond is still trading at roughly 4.05% Is there something that the Bond Market participants know that the the rest of the "interest rates are going up" crowd doesn't? I think so. But don't take my word for it. I've only been trading since 1980.
If you take a look at a 60 min chart of ES, It looks like it is forming a bear flag. I wouldn't be surprised if we see the 1122.00 area before testing/breaking this years high.
I like your comments/views on sector rotation. Is there some particular book title(s) that you might suggest in order to learn this stuff? Thanks!
I think you're putting too much emphasis on 1 indicator which is usually a dangerous thing. Remember, the vix is ONLY a volatility indicator. *That's all*. It does not have anything to do with valuation, earnings, growth rates, interest rates, bullish/bearishness. Nothing! Saying the VIX is at such a low # is EXACTLY the same as saying trading ranges are very low right now. We know that and it hasn't helped anybody determine market direction at all in the last year by saying *daily/weekly volatility is low, so I'm shorting here*. But, hey like someone else said, it's your money and who knows, you might be right, just like the broken clock is right twice a day!
Great post waggie . You obviously know a lot more than a lot of us. Now it's true that yesterday looked like a great short. Shorting has been a total waste of time and money so far in the indices however yesterday I almost took a small short position but after looking more closely at some stocks and plenty of index charts I decided not too as the picture became less clear than it was at first look and we could also be setting up for a trap. I am glad I didn't short, NQ is up 6, ES +4
Looking at bigger picture on daily chart it looks like it's forming a wedge that lower pivot has bounced off 50MA and breakdown to 100MA and bounced off of it for the "FIRST TIME" touched since last April. Daily 20MA shows lot of strength (In this lower low in daily chart of uptrending market) compare to Lower low formed in between Last "July to Sept", where 20Ma penetrated above daily trend once crossed below it, But in recent Lower Low Price failed to cross above Daily 20 MA. So it says that, this time market has lot of strenght to downside compare to last July- Sept. I am not a swing trader, But my prediction is that market soon cross below 100MA , might go near to 200MA then bounce up again