Ao minuto: Europa fecha com perdas contidas à espera de retaliação iraniana aos EUA

[Pata-Hari]

WEDNESDAY a.m.
July 23, 2003




Market Echo
by David Nichols

The market parallel I mentioned yesterday is now getting really weird. The market is exactly re-creating the previous slide from SPX 1015.


Although odd, I think it's just coincidental that the news-flow happens to be hitting the market in the same spots at the same time, gyrating prices up and down in the same way.

One difference between these two swings down is how the VIX is responding to the price movement and news flow. As the trading range progresses forward, market participants are getting noticeably more bullish. The reasoning seems to be: "If the market hasn't cracked yet, then it's not going to crack."

This next chart is admittedly confusing, but it's actually the same 60-minute chart of the SPX with the VIX overlayed as a squiggly blue line. It shows what the VIX is doing during these up and down swings in the SPX. It gives us an idea of how traders are reacting to this action, in other words.


The biggest observation from this chart is how yesterday's push up to 990 triggered an avalanche of bullishness, and a plunging VIX. I saw a lot of calls flying out the door after the news from Iraq hit yesterday. So we're now already at the bottom of the VIX range, at the point where the market has needed to re-charge its meager stores of sentiment fuel.

Yet this time may be different. That was some pretty exciting news yesterday for the market, and it just may be enough to break the VIX down of its range, dropping it into the teens on a massive surge of bullishness.

If this does indeed happen and we get the VIX plunging into the teens -- yet the SPX is not breaking out to new highs -- then in my opinion that will be setting up a very favorable risk/reward shorting opportunity. In such a scenario bullishness will be reaching a fever pitch, without the benefit of higher prices, and that's a time-tested recipe for disappointment for the bullish majority.

So let's be on the look-out for one last failing push up over the next few days to suck in every last bullish dollar, as this could be the tipping point for a more dramatic slide down.

Sentiment Dashboard
by Adam Oliensis


SENTIMENT TANK: Drained 4 points to 7% full of negative sentiment.

SHORT-TERM: Moved into an advance phase but with the VIX now below 21 and the tank at 7% there's not much more room to run before we hit "blow-off top" status..

MID-TERM: Progressed 4 points to 39% while the Confidence Diffusion Index regressed a point to a bearish 1. The gauge can't measure what isn't changing much.

LONG-TERM: Remained unchanged at 5% on the decline side with the weekly CDI unchanged as well at a bearish 1.


The VIX (one of the variables of the tank calculation) is in a descending triangle (yellow). That triangle is now 55 trading days old. The apex of that triangle is 45 trading days from now. The theory goes that triangles break by the time they are 2/3 of the way to their apex, which would be sometime in the next 11-12 trading days. That would suggest that the consolidation between 970ish and 1015 is likely to break in the next two weeks.