It’s certainly been an interesting few weeks in the market. A couple of weeks ago, after I wrote that ‘manic Friday‘ post, I mentioned to Duru (who just wrote another piece on the Fed) that the market seemed to be acting like some big (negative) event was around the corner. So I found the following, posted by Stephen Vita, to be very interesting (emphasis is mine):
“The panic which infused the options market resulted in the VIX spiking up to 17.73, its highest value since August 13, 2004. In past issues we have shown the VIX compared to its 50 day simple moving average, along with volatility bands set one 50 day standard deviation on either side of the moving average. Our page 1 indicator just measures how far the VIX is away from that moving average, measured in units of those standard deviations. Friday’s closing reading was -4.12, which is the most extreme value we have seen since September 17, 2001, the first trading day after the 9/11 attacks. Prior to that, we have to go all the way back to the mini-crash of of October 1997 to find a similar reading. This is the sort of category that this sell-off falls into.” McClellan Report, April 15, 2005
(On a similar note Ugly Chart shows the CCI on the Nasdaq at a 3-year low and good old T2108 is at 14.98, the lowest level since May 2004)
While I wouldn’t characterize this selloff as a crash that’s clearly some very serious selling pressure. (1987 had a crash — the Dow slid 30% over a few days, with a 22% 1-day drop. Here in 2005, the Dow is 8% off the year’s high and down 4% over the last 3 days. Yeah, that’s ugly, if you’re a bull, but not a crash… yet.) I still feel like the market knows something is around the corner but for all I know it could be nothing more than some hedge funds blowing up. It sure seems like (several) somebody’s being forced to sell.
I’m seeing/hearing a lot of knife catchers trying to step in and buy here — some looking for an oversold bounce, others who think the market’s wrong to be dropping like this. I have no doubt that some kind of bounce is due soon, the question is how much further do we drop before it starts. While I’m tempted to put some of the cash in my IRA to work I’ll gladly wait (at least) until the S&P 500 can close above its 200-day moving average. For shorter-term trading I see this as a sell-the-rallies market. As long as the downtrends are in effect I’m more concerned with resistance than support (In deference to one of my favorite trading rules — “Bear markets have no support and bull markets have no resistance”).
Excellent summary. As you showed with Nasdaq CCI, broad based indicators have really tanked and yet DJIA and SPX have held up relatively well. Another example is the NYSE A/D looking back to March 2003. Is it possible “the big money” is dumping everything else and moving into large cap names?
Dayum! That is some *serious* selling pressure. Methinks it shows how much complacency had crept into the market with that nice post-election rally. Is it time for impeachment yet?