David Nichols Morning Report
Enviado: 29/1/2003 16:11WEDNESDAY a.m.
January 29, 2003
Really bad mileage
by David Nichols
It was hard to take yesterday's "rally" too seriously, if you had an eye on the VIX.
While the OEX managed to scratch, claw, and fight its way to a modest 5.2 point gain, the VIX plunged 4.2 points. That's almost a point for point correspondence between the movement in the VIX and the OEX. That's terrible price "mileage" to get while burning up over 4 crucial VIX points.
To put it another way, the VIX dropped 10.6% while the OEX managed to climb only 1.2%. Not good, if you're bullish. Instead, what you want to see is the VIX staying high as demand for puts and other options positions remains high, as the crowd remains worried about further price damage even while prices manage to rise.
Yet it only took an absence of further waterfall declines to quickly reverse the momentum of rising fear. People were quick to believe in a rally. So it's likely the market will have to shake out some remaining bullish notions before any sort of multi-day rally can get rolling.
Looking at the 60 minute chart of the S&P 500 (SPX), it's been riding down a very clear linear trend-line. Such an obvious line doesn't come along that often. All through this decline, the few times the SPX has managed to pull away, it's been quickly magnetized back down to it. My guess is that we're going to get pulled right down to it one more time before the markets have a chance to put in a decent oversold bounce.
Here's how it could look:
If it's a quick drop from here, then the zone around SPX 820 is the spot to look for a bounce. You don't necessarily want to call a bottom and get in front of the selling wave ahead of this point. But from that area -- provided the VIX is doing the right thing -- we may actually get a pretty good bounce.
Since this has been such a quick and highly-charged sell-off, I'll be looking to take quick profits in our new Rydex positions on any such drop into this zone. If it gets to 820, a bounce could send it all the way back up to 875 or so, even if the markets are going to eventually continue down. We don't necessarily need hold bearish positions through such a bounce. I'll send out an update to subscribers during the day if any action is needed.
January 29, 2003
Really bad mileage
by David Nichols
It was hard to take yesterday's "rally" too seriously, if you had an eye on the VIX.
While the OEX managed to scratch, claw, and fight its way to a modest 5.2 point gain, the VIX plunged 4.2 points. That's almost a point for point correspondence between the movement in the VIX and the OEX. That's terrible price "mileage" to get while burning up over 4 crucial VIX points.
To put it another way, the VIX dropped 10.6% while the OEX managed to climb only 1.2%. Not good, if you're bullish. Instead, what you want to see is the VIX staying high as demand for puts and other options positions remains high, as the crowd remains worried about further price damage even while prices manage to rise.
Yet it only took an absence of further waterfall declines to quickly reverse the momentum of rising fear. People were quick to believe in a rally. So it's likely the market will have to shake out some remaining bullish notions before any sort of multi-day rally can get rolling.
Looking at the 60 minute chart of the S&P 500 (SPX), it's been riding down a very clear linear trend-line. Such an obvious line doesn't come along that often. All through this decline, the few times the SPX has managed to pull away, it's been quickly magnetized back down to it. My guess is that we're going to get pulled right down to it one more time before the markets have a chance to put in a decent oversold bounce.
Here's how it could look:
If it's a quick drop from here, then the zone around SPX 820 is the spot to look for a bounce. You don't necessarily want to call a bottom and get in front of the selling wave ahead of this point. But from that area -- provided the VIX is doing the right thing -- we may actually get a pretty good bounce.
Since this has been such a quick and highly-charged sell-off, I'll be looking to take quick profits in our new Rydex positions on any such drop into this zone. If it gets to 820, a bounce could send it all the way back up to 875 or so, even if the markets are going to eventually continue down. We don't necessarily need hold bearish positions through such a bounce. I'll send out an update to subscribers during the day if any action is needed.