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Market Analysis

First, a brief review of a historic week. MON.:dow decline is the most since the Sep.01 bear. Tues.:nyse vol. is the highest on record. Wed.: Second highest vol. on record. The vix is the highest since Aug 02. Gold is up the most since 1980. The libor goes to a 9 year high.(meaning a severe credit crunch, banks dont want to loan to each other). I think it went almost to 4%, 'normal' being about 2%. Thurs.: Gold falls the most since 1980. T-bills at an alltime low. Fri.: 2 year treasuries yield rise the most in 20 years.(indicates relief that maybe the world wont end after all). Truly a week to tell the grandchildren about!
What can we derive from all this? The problems facing the economy are severe, even extreme. As the government has only recently begun to realize, we are in a bear market. The housing mess will continue well into 09.The last bastion of safety, The money markets in this country nearly imploded for Gods sake! But there is some reason for hope, at least for us traders. The vix got over 30 this week which usually portends a decent rally. It even shot up to 42 this week at one point. Look at history. The last 2 times that happened we had an intermediate term low in place and a good rally lasting a few weeks or months. In sep. 2000 after reaching 42 we rallied 24.5%. In july 02 we hit it again rallying 24.5%. This year we went 37.5 at the jan. low and had a decent (tho short in duration) rally. Then we went to 35 at the Mar. low and had a very nice rally to the May high. So what this all indicates, is that there is at least a fair likelyhood of an intermediate term low in place and a rally of a couple weeks or months coming. It does not, unfortunatly, speak to wheather the bear has ended or not.(witness jul02 when the actual price bottom came in oct,slightly lower)
Our 1140 worked, Koolio.
New highs minus new lows is also an indicator used by many on the street. New highs should always exceed new lows in a healthy bull run. At every intermediate term top, highs- lows equals 0-100. Intermediate term lows generally occur at minus 800- 1000.Lets look at this year alone. After a plus 70 or 80 in dec.07 we plunged to the jan. low where we hit around minus 860. we caught a decent rally off of this till feb.s plus 60 or so and plunged to the Mar. low where we registared surprisingly only minus 650 or so.( a clue that further lows lay in wait perhaps?) after the rally to May highs we hit over plus 100!(note the reading came well after the price high in may!),plunging to the july low and a reading over minus 1100! If memory serves, we had the largest number of new lows in recorded history here. Up again to the recent Aug top and barely positive reading. Now we are at minus 1000. I want to emphasize this is an indicator, not a prcise timing tool to pin down the exact day of a market top or low! But is a very good indicator of an imminent trend.
Conclusions: Last week was the most 'panic stricken' ive seen in the markets in 21 years. However, the vix reading over 42, the record vol. on the nyse, and the new highs -new lows all have hit levels which historically have led to at least intermediate term lows and decent rallies.( one could argue however, that we already rallied from 1136 on the s&p to 1291, an incredible 155 handles in less than 4 hours of trading,if you exclude globex).Remember, these are not 'timing indicators' but indications of trend changes starting or coming soon. Actually , i would expect some backing and filling before we take off. Maybe even a retest of the low as forecast by the vol. Any way these above indications and others i use (cycles) seem tosay we are at or very near an intermediate term bottom which should last 20-50 days at a minimum. Time will tell. Dont forget to watch the closing ticks in the nyse. Any time its at 800 or above we get a decent decline within 2 trading days.
In closing let me point out out a few more things. There is a gap on the s&p somewhere around 1210-13 or so( basis cash index) Gaps usually get filled at some point. There also some support between 1150-1185(sorry bout the large range). And lastly note that the spoos closed at a severly negative premium to the cash index fri.(not good!)One can only hope this gets rectified in the overnite session sun.,or mon. morning could be ugly once again! In future posts i intend to be more specific about the coming week, but i wanted to look at the 'bigger picture'in this first one. Im hopeful Larry22 (seen on the ttt thread) Spqr, Charter Joe, and Bruce m from the es threads will also contribute occasionally. All have excellant forecasting abilities. Maybe daytrader will also provide some perspective. His daily blog is must reading.Next decent cycle low is due Oct.15 plus or minus one day. C ya and good trading! "Tomorrow is going to be wonderful because i have no idea whats happening today!" Neils Bohr... physicist