It’s A Scary Halloween In The Markets
After yesterday’s big run up the market apparently suffered from indigestion and gave a big belch today. A belch is good after a large rally because it relieves the pressure that has been building up inside. Interestingly enough, GLD initially sold off but then recovered to close higher than it opened. The U.S. Dollar rallied but did not make it to the top of it’s downtrend channel as it did yesterday. While the S&P has broken below the bottom of its uptrend channel, the Dow has not quite hit the bottom of its uptrend channel.
The only new chart I will present is that of the VIX as this is the most important indicator to watch. If we take a look at a 2 year chart of the VIX you can see that it has rallied right to the top of its downtrend channel and that it is just slightly below its 200 day moving average. A large spike up in the VIX generally indicates the end of the sell off and this spike was of historic proportions. The VIX stochastic is also in very overbought territory. A further spike in the VIX above this level however could signal the beginning of a trend change.
The stochastic on SPY is in very oversold territory and is giving a buy signal as is the stochastic on GLD. While the MACD on SPY and DIA is still well above 0, since July it has been oscillating with a decreasing amplitude as the market has been rallying. Everybody still has in the back of their minds the horrible stock market crash that occurred last October and many talking heads are expecting further selling. The technical indicators are indicating a move up and today’s price action on SPY covered the entire width of it’s bull flag pattern that is still intact.
Monday is Nov. 2 and the start of positive seasonality for the stock market. Warren Buffet says that you should buy when others are fearful and since the U.S.A. had excellent GDP growth last quarter it appears that the economy is really recovering. There are also plenty of doomers and gloomers who don’t believe the stock market rally is for real but do believe that the economy is actually getting worse. On top of that are the money managers who missed out on the rally and wish to show good performance numbers for the year. Since there is still a gigantic wall of worry to climb, if the VIX stays within its downtrend channel then we should see another big leg up in the markets before years end. While Cramer and some other analysts believe the market has topped for the year, I think there is a strong possiblity that both the S&P and Gold will hit 1200 by year’s end.
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