Petróleo sob pressão após ataque dos EUA ao Irão

[Camisa Roxa]

MONDAY a.m.
January 27, 2003



A Punishing Market
by David Nichols

Friday was a knock-out blow to those who were simply planning on riding out the "pullback".

With such a decisive drop underneath a very obvious and widely-recognized line of support, the thing that is now hard to support is a bullish view of the market.



All those caught long, or with too much exposure, are now in panic mode. We've all been there at some point. We know how it feels. It's not fun.

A look at the VIX shows a huge white daily candle on Friday, showing this true panic gripping the markets. The VIX jumped a remarkable 15% in one trading day. Actually the jump came all at once, during the morning sell-off. It was a sudden acceleration in fea. We had seen the tell-tale signs, the sudden "spark of fear," back closer to its genesis.



So now wrong-way longs face a tough quandary: Do you sell into the panic, because it's going to get worse? Or do you let the other guy panic and ride it out, because when the market gets so ugly so quickly it inevitably bounces?

It's this age-old bear market quandary that usually leads to acceleration in both directions, right when you least expect it. This morning the futures are down big, indicating some residual panic. Once the obvious line of support was breached at SPX 865, then acceleration is to be expected, and that's what we're seeing now. The markets are now cranking up the volatility again, after being relatively quiet for a few months.

The irony of the long's predicament is that it's just too hard to get it right in this situation. The market will now punish these bulls by forcing them to sell in a rush, which will naturally mark a short-term bottom. This short-term bottom could come as early as the first half-hour of trading today.

But as I've been saying lately, all the other really big bear market declines looked and felt just like this when they started. It all starts with an initial period of denial that the selling could be anything serious, pointedly marked for us this time by sentiment divergences in the VIX and QQV. People weren't palpably afraid of the initial declines in price. So we stake out bearish positions and watch, looking for what will actually make them afraid.

Nasdaq 100 traders are still living in denial, for the most part. The VXN and QQV -- both volatility measurements of Nasdaq 100 options pricing -- haven't really spiked like the VIX. This is pointing to more painful decisions lying ahead for Nasdaq bulls.

Over the next few sessions, a bounce should start as the markets enter a short-term advance phase. We'll see how much energy can be mustered to the upside. You can't take a bullish case seriously until at least the broken line of support is recaptured at 865. Until then, it's just wishing and hoping, and we're already seeing how brutally the markets can punish such naïve thinking.