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Market Posture, again. :)

August 2, 2007
tags: ,

My Gosh! Is it really over a month since I posted a blog? Interesting, though, to read the last one. Not a bad read on things, I think. And VSEA has done well since then. Today was a seeming breakout that I almost bought. But because it was a resistance breakout with less than 150% average volume, I decided to pass, particularly considering the shaky nature of the markets at the moment. There was a lot of buying going into close, but in after hours it sold off a good amount of the day’s gains, even if on low volume. It remains one to watch.

In any case, here’s the rundown on what we came up with for the Market Posture. I want to remind that the intention is to come up with a posture for the intermediate term, meaning not what’s going to happen tomorrow, but what we might expect in the coming months. And also, because this was a tough one to call, I want to emphasize that technical analysis is as much or more art than it is science. Therefore, we will all see things a bit differently. Because I was leading the exercise, it is of course skewed toward my take on things. Others had at times slightly different views. Whoever is doing today’s Market Wrap on the Investools site might have a totally different view. There is no “right” answer. We’re each entitled to our own interpretation of things and should become well practiced in making such interpretations. That’s the whole point of the Investools education.
Without further ado:

SPX:

On the shorter term, while the recent downdraft feels awfully bearish, there are quite a number potential support lines just below us now. Furthermore, though the shorter term and even intermediate uptrend clearly broke, there is still no official downtrend when considering a trend as a series of highs and lows. As a result, the SPX chart was considered Neutral.

Market Forecast, is bearish because the green intermediate line is the lower reversal zone. Market sentiment line also bearish with tons of room to go yet.

Finally, the VIX. The Volatility index, or as some people call it, the Fear Index. Without even looking at it, would you guess from the market lately that fear is high? The Vix surely supports the thought.
“When the VIX is Low (and turns up) it’s time to go (sell).” “When the VIX is High ( and turns back down) it’s time to buy.”
It is high now and possibly turning back down. But it really hasn’t yet. But it does seem like a pullback or breather would be necessary for it to surge yet higher right now. Therefore, we called it Neutral.

What is really interesting is to look at the very long term chart of the VIX. This is as far back as the data goes. I remember thinking and hearing in the past year that perhaps the days of high volatility were over. Better technology, more sophisticated markets, better risk control. Perhaps not.
It has moved back above what was for years the floor. As Jim pointed out last night, if the market does bounce from support at the current level and approach the high again, but the VIX fails to get and stay back below the 20 or even the 18 area, than the VIX will probably be telling us that the move is not trustworthy. This would confirm the same message Jim has been hammering away at on the $NYAD, which remains completely broken down from the top despite the DOW still holding up.

I hope this makes sense to you, whether you agree with the interpretation or not. Whatever the case, the most important thing is that you question and interpret it for yourself and don’t just accept whatever I or whoever else has to say.
I’ll let you go through the process and do the NDX yourself.

Until next time!

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