Ao minuto: Petróleo atenua escalada com mercados à espera de resposta do Irão

[Camisa Roxa]

TUESDAY a.m.
January 28, 2003



Filling up the Tank
by David Nichols

Even by recent bear market standards, this stock market swoon has been a standout. This hasn't been a slow, grinding decline -- it's been a rogue wave of fear quickly rushing over the market.

The thing about accelerated declines is they can lead to accelerated bounces. Like the once-trendy bungee jump, it's the first snapback that really gets the adrenaline pumping.

The VIX went over 40 yesterday, hitting 40.89 intraday. It then reversed and closed at 39.77. Keep in mind that at the close of trading on Thursday, the VIX was at 30.97. That's a 28% jump in two trading days. Fear is in full control, and people are more than willing to pay up for options, either defensively or speculatively.



Even the QQV -- the volatility measurement of the QQQ -- has jumped. At last, QQQ traders are sensing the possibility that the market just might not hold at support, and a further waterfall decline could be coming.



The McClellan Oscillator, a measurement of market breadth, has been taking a nosedive similar to those seen at the washout bottoms in July and October. It's now in the range where strong rallies have been spawned in the recent past. But it, too, is still accelerating to the downside, and it's going to take a big momentum shift to even turn this oscillator around.



Now, to a contrary way of thinking, the crowd becoming more and more fearful and bearish is the thing that starts to get us preparing to go long. Below, you'll find that our sentiment tank has filled up to 75%. This represents the potential "fuel in the tank" to push the market higher, and right now the market is pressure-loading the sentiment tank like it's a Michael Schumacher pit-stop.

This is actually more bullish than a decline that doesn't trigger any fear. We're seeing the VIX pop, just as it should. This could turn out to be a quick and nasty sell-off that quickly reverses, if this current sentiment pattern keeps playing out as it is.

But the tank is not at 100% just yet. It's impossible to know if it's even going to get to 100% this time, as there are so many exogenous factors that could now have an influence on fragile investor psyches. However, nothing potentially bullish has come into play just yet. We can't assume anything about a snapback rally until we see convincing evidence that it can even happen.

Yet remarkably, in just two days of horrible trading, the conditions are already right for a potential snapback, at least on the OEX/SPX side of the street. Over at the Nasdaq, there are still some major sentiment problems that will have to be dealt with eventually.

Over the next few sessions, we'll have more guidance to work with from investor sentiment, as it's now vital to gauge the reaction to the coming short-term advance phase, which is way overdue.

If over the next few days we see a sideways, drifty market that can't summon up any real buying pressure, then the market has a BIG problem going forward. Once the oversold condition is worked off, and the selling starts up again, the tank should quickly get to 100% as the market plummets again. This is the preferred scenario, actually, as we can make a lot more money in such a volatile market if we keep a clear head, both on the way down and on the way back up.

If the market can turn around and convincingly recapture SPX 865, then we'll be right back in the "neutral zone", and a swoon to the July/October lows -- or lower -- will likely have to wait for another time.