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Charts courtesy of stockcharts.com

Monday, October 6, 2008

Party Like It's 1999

The VIX spiked up to 56 within a few minutes of the open, dropped to around 53, and stayed there most of the day as the market tried to hold the morning low. Just after lunchtime, it spiked again, this time to 58, as the market failed several times to gain a foothold, and it sure looked like we were headed for a crash. Just before the last hour of trading started, it dropped, and a wave of buying started.

As the market was tanking, stocks were being thrown away. Every stock on my screens was red, most down over 10%. As the VIX hit 58 and reversed, they stopped dropping. Then many were moving up, some fast. Here is the Nasdaq, with the approxiamte fibonacci levels from the 2002 low to the 2007 high. Last week it broke the 50% retrace level, and promptly dropped to the 61.8% retrace today, which it undercut before closing back up. Volume was very high, but a lot of that was buying in the last hour.

The Russell 2000 severely undercut the 61.8% retrace, but also closed above it. The Russell has dropped an awfully long way, and could be due for a bounce here. The late buying indicated that that is certainly possible here.

The bad news is that the SPX not only undercut the 61.8% retrace, it closed below it. It needs to get back above it real soon, or we could be looking at a financial crapstorm of ernormous proportions. There is not a lot of support above the 2002 low.

The Dow is below 10000, a level it first broke to the upside in 1999. As I suspected, the situation in Europe is worse than they were telling us. Oil is below $90, a level I thought in would never break again. I read an analyst (I can't remember who) who predicted $60 oil a couple of months ago. I thought he was nuts, but it is certainly looking like a possibily.

On the positive side, the VIX spike above 50 indicates panicky investors who are throwing stocks away. This is usually a sign the market is near a bottom.

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