Tag Archives: VIX

What are traders watching?

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Last week definitely shook off some late entries. VIX is getting back to life. I do not like when VIX is hovering below 20. When nobody cares, when nobody is afraid or excited markets do not seem real. It’s often like a quiet time before a storm…

Are we going to get more “shaking off”? Probability is high with all the “happiness” with the recent move up toward all time high. For me “all time high” is always a danger zone.

Maybe you are an “aggressive trader” – go for it. I trade: sell at resistance/buy at support + patience. Boring? Maybe; Profitable? Yes; Fast? No

What are traders watching? With so many trading techniques and participants you need to find what works for you.

I like to stay within my selected and proven group of ETFs. Currently I watch weekly charts.

XME has not been trading well during the most recent market move up. With XME lagging the market, I used that as a warning and I have been trading accordingly.

XME seems to be trading within a bearish H&S pattern on the weekly chart. Are other traders noticing that pattern? Is it going to entice some short term negative response in other market areas to give me opportunity for more good trades?

For now I am assuming that to be the case and I will use XME moves to guide my trading.

XME041012

Traders are talking about the bearish pattern of “rising wedge” on many major charts. I use MDY for my swing trades. I am writing this blog on Monday morning. MDY is currently breaking down out of that pattern.

MDY041012

Do traders care about the possibility of the double top? (points 1 and 2). Is MACD rollover coming? The possibility is high.

The market is in an uptrend. Decent pullbacks to major levels or any other widely observed indicators should be bought until proven otherwise.

Eva

A Better Market Picture?

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After months of going nowhere fast, the market is looking like it wants to go higher. The S&P is now within striking range of summer 2011 highs after hitting a low of 1074 back in October.

Why the sudden change in direction?

First, corporate earnings have been well received. Apple itself had a blowout quarter, getting a very positive market response, and now has the distinction of being the highest market cap stock in the world, neck and neck with Exxon Mobil.

Next, the market senses an improving (albeit slow) economy, with weekly jobless claims remaining under 400,000 for a number of consecutive weeks now. We’re also seeing an improved manufacturing picture and consumer sentiment has been improving as well.

Also, there has been considerable technical improvement in the market. Specifically, important indicators that technicians watch have gotten markedly better. For example, in early October of last year, the 20 day moving average on the S&P – that is, the average closing price for the preceding 20 day period – crossed above the 50 day moving average for the first time in a number of months, which was a very bullish development. Since that time the S&P has climbed 8%. Additionally, the 20 day crossed above the 200 day in early January, another bullish signal and resulting in a move higher.

S&P 500 6 Month Daily Chart

We’ve also seen the yield on the 10 year treasury bond move up from a December low of 1.8% to as high as 2.09 on January 23. This move in yields indicates investors are willing to take on more risk, benefiting equities.

Another key development has been the decline in the Volatility Index, or the “VIX” – commonly referred to as the “fear meter.” The VIX has gone from a reading of over 47 in early October to just over 18 in late January. That is a significant shift in thinking, and indicating more willingness to invest in and trade stocks.

Everything I’ve laid out has resulted in a better market picture, but can it last? Where might the market be headed?

My partner and Chief Market Strategist at Invested Central, Tom Bowley, just conducted a session titled, “The January Effect.” During his presentation Tom laid out historical data showing where the market ended up for the year based upon January’s performance. It’s clear after sitting in on the presentation that a strong January indicates a high probability of a strong year.

Of course, some will say we are in an election year, and that will influence market behavior. That might be true, but there are always events, some out of the blue, that can impact market performance. So, we pay more attention to what the charts and historical data tell us, with the belief that the market is always looking forward, and charts never lie.

It doesn’t really make sense to try to predict where the market will be by the end of 2012; we’re more focused on the here and now. But, if the bulls are able to clear the high of last year of 1370 on the S&P, it should pave the way for the market to go even higher.

Housing Starts Beat Expectations and other Mid-day News

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The November housing starts came out earlier today and appear to have really beat the expected number, up almost 10% month-over-month to a seasonally adjusted annual rate of 685,000 units. (The market was expecting around 627,000.) Is this a sign of recovery, in the housing market and in general? Keep an eye on the Home Sales report tomorrow to see if the good news continues…

Wall Street seems to be reacting well to this report, as well as to some positive developments in Europe. The S&P is back above it’s 20 and 50 day moving averages, up about 2.6% as of 11:20 AM Eastern, and the VIX is down about 10%.

Finally, Bank of America appears to have held the all important $5 line, for now…This isn’t just a psychological barrier, many institutional investors are supposed to remove stocks from their portfolio once it gets below $5.

Anything else you’re watching today?

Waiting and patience…

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What’s new in the markets? Nothing much – not yet at least. European mess and US budget problems not addressed do not provide any direction to markets. These two issues seem to have the major impact at the moment.

Because resolutions to any of them are not predictable, thus I can’t assign any probability to any direction from here.

Under these circumstances I have to continue to wait and practice my patience and continue to focus on shorter time smaller movements and tedious trading.

Possibility of a bounce from here is rising just because the market is becoming “oversold”. Is it enough to trade bigger? No, not for me. Market may stay oversold for long.

A small bounce may be followed by “drifting” to the downside in a slow fashion. That kind of a tired bleeding market would be the worst. I would prefer a big drop and panic and reversal to enter a bigger trade. Am I going to be ready emotionally for that decision?

I am sure I would enter such a trade. The difficulty for me would be to define the “safe” size of such a trade. Not in a logical way – the emotional comfort is still a factor…

The VIX is not giving me any assurance of a longer lasting bounce either.

The weekly VIX chart looks like it’s ready to retest 45 value:

$VIX Weekly Chart

The monthly chart with just few days left is also ready for an upward move:
$VIX Monthly Chart

Eva

Market Chatter for October 28, 2011

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TECHNICAL ANALYSIS:

PRICE/VOLUME COMBINATION:

I’d begin to take a different approach to equities. Money is flowing into key sectors and away from “risk off” types of assets, like treasuries. The bulls have already enjoyed a huge runup in price during October, so a bit of profit is to be expected at some point. The nature of any selling will be significant, but I fully expect bulls will support prices at critical areas like price support and 20 day EMAs.

Now that the S&P 500 has cleared 1256.88 price resistance (neckline) and done so on BIG volume (5 billion shares traded yesterday on the S&P 500), look first for support there on any pullback. Should that level fail to hold, the 20 day EMA, currently at 1220 and rising, will be become VERY important.

The biggest resistance across our major indices is the Russell 2000 at 773. There were multiple tests of that support level during 2011 prior to the early August meltdown. Small cap bulls would REALLY like to see 773 resistance taken out.

MACD DIVERGENCES:

Divergences really shouldn’t hold back the market action to the upside. Both 60 minute and daily MACDs will support higher prices near-term. While the weekly divergences have improved, they remain one of our more bearish technical indicators at present.

MOMENTUM OSCILLATORS:

The stochastics and RSI are as follows on our major indices:

Dow Jones: 92-66 S&P 500: 90-64 NASDAQ: 86-61 Russell 2000: 93-64

We’re a bit overbought on stochastics, but RSI has not yet touched 70, so there’s still room for more upside action before we become overbought on both oscillators.

SENTIMENT:

The VIX is near the flat line for today, but resting very close to 25, a far cry from the readings in the 40s from August, September and early October. The break below support is further support for the bulls as a falling VIX is generally synonomous with a rising equity market. Not only are we now trending lower on the VIX, but we’ve also closed below key support.

The equity only put call ratio (EOPCR) is at .58 as of 12:00pm EST and relative complacency has spiked back to 14.43%. Yesterday’s closing EOPCR was .51 and relative complacency was 17.47%. These are fairly extreme readings and will make much more upside action near-term problematic. If it does create a short-term pullback, other technicals suggest it will be a buying opportunity.

MAX PAIN:

We’ll revisit max pain the week before November options expire.

HISTORY:

The Bowley Trend is our historical indicator that alerts us to specific periods throughout the year when three of our key indices (S&P 500, NASDAQ and Russell 2000) tend to trend in one direction or the other.

All of our major indices have turned BULLISH and will remain that way through next week’s close.

We know there’s a tendency for rising prices this time of year, but as the earlier part of this week proved, tendencies are not always proven reliable. History simply provides us one other indicator that must be taken in context with other indicators.

SECTORS:

Most of our sectors are hovering near the flat line today, with consumer discretionary stocks a notable laggard. Part of that was the XHB (homebuilding ETF) touching big resistance in the 16.75-17.00 area and pulling back today. The XHB was down close to 3% at last check. The apparel retailers index is also down 2% after testing 2011 year-to-date highs yesterday. In my opinion, this is normal technical behavior. After pulling back a bit, another breakout above these key resistance areas would likely power consumer discretionary stocks to a relative leadership role vs. the S&P 500.

Semiconductors made a massive breakout on Thursday, easily clearing major price resistance at 385. The SOX gapped above this level at the open on Thursday and never looked back. 385 is now serious price support for this group, as is the rapidly rising 20 day EMA at 374.

After yesterday’s very poor technical showing, the U.S. dollar index appears poised to retest support in the 73.00-73.50 zone that was tested multiple times over the summer. A breakdown below 73.50 would likely lead to a flurry of buying in commodities.

ECONOMIC AND EARNINGS REPORTS:

September personal income was weaker than expected (0.1% vs. 0.3%), while personal spending matched consensus estimates at 0.6%. October Michigan sentiment rose approximately 6% to 60.9 while expectations were for little change from the prior month. So, economically, there was a little news to support both the bulls and bears.

INDIVIDUAL STOCK TRADES:

Two stories emerged during this quarterly earnings season thus far. Both Select Comfort (SCSS) and Unisys (UIS) posted excellent quarterly results recently and upped guidance. The market reacted quite favorably to both reports. I would expect we’ll see higher prices on both into year end. Therefore, I like entering both from current prices down to their respective gap support (top of the gap) levels, holding so long as their rising 20 day EMAs hold as closing support.

SUMMARY:

The market can move higher in a variety of different ways. The key is to determine if a move is sustainable or not. The only way to do that is to see how much money is flowing into the market and where that buying is being distributed. In April, we were very concerned about the market breaking to new highs because April was led in very large part by the three defensive sectors – healthcare, utilities and consumer staples. Those types of rallies are not sustainable because investors are showing no appetite for risk.

Thursday’s action, however, was VERY BULLISH. We saw wide participation, heavy volume and, most importantly, a MAJOR breakout in financials, especially banks. I know there’s a lot of deciphering that’s taking place right now regarding the European sovereign debt crisis, and the plan that was approved to attack it. But the bottom line is how our markets here in the U.S. reacted to the announcement.

In my opinion, the reaction could not have been much more positive. We always have to “play what we see”, not what we think we see or what we want to see. The action on Thursday was bullish enough that I believe we’ve put the lows in our rear view mirror. I believe we will see a much better stock market over the short- to intermediate-term because of the technical changes that have been taking place. While pullbacks will occur along the way, I’d tend to avoid trying to short stocks at this point. If that changes, I’ll be sure to pass it along to you. But given the positive developments, we will focus our attention into year end on the long side of stocks. The primary line of defense for the bulls will be the 20 day EMAs. Should we fall back beneath those key moving averages with a spike in volume, I may have to re-evaluate. Until then, I’m bullish.

I hope you have a GREAT weekend and are able to spend some quality time with family and friends!

Happy trading!

Market Chatter for October 19, 2011

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As part of our free fall preview of Tom Bowley’s Market Chatter, we’re going to be posting the Market Chatter on our website every day for the rest of the month. If you want to have it delivered via email every day, you can sign up here.

TECHNICAL ANALYSIS:

PRICE/VOLUME COMBINATION:

Raise your hand if you thought Apple (AAPL) would miss their numbers and the market would basically shrug it off? If you raised your hand, I’m sure you’re in the minority. When I saw the market’s reaction to AAPL’s results Tuesday afternoon, I figured today would be ugly. That really hasn’t been the case yet, at least there’s been no knee-jerk reaction to the downside in the early going. Yes, the NASDAQ 100 is underperforming, but given the weighting of AAPL in the index, that makes perfect sense.

Overall, the major indices are climbing the proverbial “wall of worry”. Spain was downgraded by Moody’s. So what, right? Moody’s and Standard & Poors seem to be taking turns going through all of Europe, downgrading one country at a time. The market clearly understands the debt issues in Europe. That uncertainty appears to be priced into our market. Obviously, if things get worse, we’ll take a hit. But the focus has shifted to earnings here in the U.S.

Technically, the action in recent days has been bullish – not just because the indices are higher, but also because pullbacks have held key support levels like the 20 day EMA. If those 20 day EMAs fail to hold, more downside action is likely. Until then, the short-term appears mildly bullish.

MACD DIVERGENCES:

Daily MACDs look superb, with all of our major indices sporting a MACD above the centerline and pointing higher. This tells us that the short-term 12 day EMA is “diverging” away from the longer-term 26 day EMA. In other words, bullish momentum is building.

The weekly MACDs look most suspicious on the Dow Jones and S&P 500 as both of these indices are barely above those key 20 week EMAs. With the weekly MACD pointing down at the most recent low, bounces on the longer-term weekly charts many times fail at these 20 week EMAs. This highlights the mixed technical picture of the market currently.

MOMENTUM OSCILLATORS:

The stochastics and RSI are as follows on our major indices:

Dow Jones: 91-58
S&P 500: 92-59
NASDAQ: 93-59
Russell 2000: 90-56

The momentum oscillators remain in very perilous position. Stokes in the 90s and RSIs in the upper 50s during a downtrend can be lethal. But if we continue to see positive developments in terms of key breakouts amongst our major indices, sectors and industry groups, the downtrend may well be over. We’re clearly at a key pivotal point technically.

SENTIMENT:

The VIX is stubbornly remaining high, despite the market’s decent reaction to a few disappointing earnings reports, namely Apple (AAPL). This is an indication that traders continue to expect wild swings in prices in the days ahead.

The equity only put call ratio (EOPCR) is at .69 as of 11:00am EST. Relative COMPLACENCY is at 9.80%. Relative complacency, now very close to the double digits, could begin to be problematic. From my experience, however, relative complacency is not nearly as reliable in marking tops as relative pessimism is in marking bottoms.

MAX PAIN:

This past weekend there was a max pain video done to highlight the possibilities. Directionally, it would appear we might see downward pressure this week, particularly on the NASDAQ. While the selling has been mild, the NASDAQ has definitely been underperforming.

HISTORY:

The Bowley Trend is our historical indicator that alerts us to specific periods throughout the year when three of our key indices (S&P 500, NASDAQ and Russell 2000) tend to trend in one direction or the other.

The major indices will be NEUTRAL all week, but will turn VERY BEARISH at Friday’s close as next week is the worst performing week of the year historically. More on that in tomorrow’s Market Chatter.

For those that are new to Invested Central and the Bowley Trend, the 19th calendar day of the month has been BY FAR the worst performing day. While that’s partly attributable to Black Monday, October 19th, during the 1987 market crash, we could exclude that day altogether and the 19th would still be the worst day of the month BY FAR. It’s just one of those odd facts to always keep in mind.

SECTORS:

Here’s a bearish development. Today’s advance is being led by utilities and healthcare, two defensive groups. The money is flowing into the wrong sectors to lead a sustained advance. This could definitely be a signal of a short-term top and is worth noting. Financials, which led the market yesterday, advancing strongly, is higher today but more subdued.

Materials and technology are the primary laggards, along with consumer discretionary. Technology and consumer discretionary led the market rally into earnings. Many of the stocks within these two sectors are finding it difficult to advance after earnings because a lot of good news was already built into prices. These two sectors continue to look to be among the best technically, however.
The dollar has tumbled in October, but does appear to be gaining support near its 50 day SMA. A move lower by 1% or more from the current level would break that 50 day SMA, putting more pressure on the dollar. For now, however, we’d expect this support to hold.

One of the best industry groups in the near-term appears to be (gasp!) HOMEBUILDERS! They are actually acting very bullish technically with their MACD above the centerline and pointing higher. Note yesterday’s low touched the rising 20 day EMA and bounced strongly. These are signs of a bull market, not bear market.

ECONOMIC AND EARNINGS REPORTS:

September CPI and core CPI both were basically in-line with consensus estimates. Core CPI managed to come in just slightly below expectations. September housing starts were much stronger than expected, rising 15% from August levels while the market was looking for a much more modest 4% rise. Building permits for September were a tad lighter than expected.

The Fed’s Beige Book will be out at 2pm this afternoon.

INDIVIDUAL STOCK TRADES:

While we are not proponents of overtrading the market, there are some stocks that are beginning to look much more bullish technically. Here are a few:

BRO – heavy volume breakout above the 50 day SMA on Tuesday. Thus far, we’re seeing some follow through in today’s action. The rising moving averages should be considered primary support on any pullbacks…

DPZ – broke out of an ascending triangle on Tuesday and is following through today. Volume confirms the pattern and DPZ ultimately measures up to 35.00…

EMC – still has a big price resistance test in the 25.25- 25.50 area, but Tuesday’s heavy volume push through 23.50 was a solid start. With a MACD above the centerline and pointing higher and an RSI that finally broke through 60, the odds appear to be turning in the bulls’ favor…

SUMMARY:

If you look back at history, you’ll see that a weakening housing market in 2006 preceded the worst bear market from 2007 to 2009 that I’ve personally experienced in my lifetime. I’ve said for the last few years that an improving housing market was essential for the market to be pulled out of the bearish state it’s been in ever since. We don’t know if this move is sustainable on the XHB, but at a minimum it appears as though a bottom could be forming in the group. If you look at a daily chart, you should be able to spot a possible bottoming reverse head & shoulders. That could lead to one more short-term leg lower. But if that shoulder holds and we print news highs, homebuilders may no longer be a drag on our major indices. That would be a VERY POSITIVE development for equities.
I’ll highlight the XHB chart in Thursday’s Chart of the Day.

Overall, mixed signals abound. I’ve looked at the market for a long time and I’ll be honest. Trying to determine where this market is heading over the next three months is difficult, let alone the wackiness of the day-to-day action. Eventually, we’ll have a market that can be swing traded with more confidence. In the meantime, we have to deal with what’s at hand – a market providing us no clear signs on its directional intentions.

Happy trading!

marketFORWARD for September 18, 2011

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Let’s be clear about one thing. We would much rather be bullish the stock market than bearish. Since 1950, the S&P 500 has risen 53% of the trading days. Shorting the market historically puts you at a disadvantage. Remaining stubbornly on the short side will absolutely decimate a portfolio over time. You have to pick your spots to be short. There were lots of warning signs that the stock market was topping. They started in February 2011 and the number grew by the April/May top. On the downside, we’re nearing the same point we were in February on the upside. Warning signs of an impending turnaround are growing, but we may not have enough yet to actually make the reversal stick. We may need another move lower.

No one will convince us that last week’s rise was anything more than an options-related bounce to wipe out BILLIONS of net in-the-money put premium. With one week left before options expiration last Friday, max pain stood about 3% higher on the NASDAQ, nearly 7% higher on the S&P 500 and 12% higher on the Russell 2000. There was simply too much money at stake for the market makers to walk away. Volume was fairly light throughout the week — at least until options expiration Friday, which is typically heavy — and that set up what we believe was manipulation right up until options expired on Friday.

Take a look at the economic data that came out last week, the Moody’s downgrades of debt of a couple French banks and try to explain five consecutive days of gains. It’s not an easy task. Options manipulation certainly seems plausible, if not the outright cause.

This upcoming week should give us a MUCH better sense of where the major indices are at technically. There are several reasons to question last week’s rally, so let’s address them one at a time.

High volatility is normally associated with stock market weakness. After a rather ominous black candle printed on the VIX on the last rise, indicating a potential top in the VIX and potential rally in equities, the VIX on Friday fell to touch fairly critical short-term support. We’d expect support to hold. If it does and the VIX begins another uptrend, it will not bode well for U.S. equities in the upcoming week. Here’s the chart:

Note that each of the last two times the VIX has approached support near 30, the VIX has bounced and the S&P 500 has topped. If the bulls are to see a different outcome this time, the VIX will need to fall below that 30 level.

A second reason for concern is that for the first time last week, the semiconductors did not lead the rally to the upside on Friday. Relative strength in semiconductors during the downtrend was quite apparent. While it’s very bullish to see the sudden relative strength in semiconductors, was Friday’s lack of strength in the group a precursor of more weakness to come or was it simply a breather during an otherwise bullish run. We’ll find out more next week. Check out the failure of this group to add its recent gains on Friday:

Transportation stocks, like semiconductors, tend to provide us a sense of economic strength or deterioration before the news hits. In other words, they act as leading indicators of future stock market and economic performance. Transports had a beautiful week last week, but failed to close above key resistance at 4700. If the bulls want to keep this rally going, resistance at that level must be negotiated.

Finally, the yield on the 10 year treasury reversed lower on both Thursday and Friday after challenging 20 day EMA resistance at 2.11%. The yield finished at 2.07% on Friday, so there’ll need to be more selling of treasuries and a corresponding rise in the yield above 2.11% in order to corroborate a further stock market rally.

Last week was a good solid start for the bulls, but given what we know about options expiration week, let’s not jump to conclusions that all is well. It will be important for us to see follow through this week. Following through to the upside during one of the most bearish historical periods of the year seems like a difficult task. It would make a continuing rally that much more impressive.

Happy trading!

Intraday Trade Part 1

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Even if you are not a day trader it is beneficial to observe intraday chart for a better entry for your trades.

I do day trade. Not every day, because not every day I can be available in front of my computer with 100% focus.

I prefer to day trade during the first 30 minutes after market opens. I day trade only if I see my favorite setups develop.

I will use IWM 5 min charts to describe some of the trades. I will only trade from the long side.

I always check the daily chart situation to know if my possible trade would develop within a pullback or as a counter daily trend bounce. Why? If it’s a pullback within the daily chart marching up, my target gain has a better probability of reaching at least the level of resistance. When I enter an intraday trade within a counter trend bounce, I take my smaller gains much faster even before they reach resistance.

Let’s see how that worked on March 17th, 2011. IWM was approaching the lower BB on March 16th after couple weeks of falling.

IWM opened more than 0.5% down, falling through its low BB on the 10 day chart.

Quick look at the intraday chart – I have a trade: CCI dropped to an extreme “-300”, IWM opened close to its April support around $81.4

VIX, at open was slightly positive, just about 2%.

I enter the trade with a high probability of the bounce and holding the support at least during the first 15 minutes or even 30 minutes. Target for my gains is just the resistance from the previous day close. That is it, with IWM testing the support on the daily chart I would not plan to “see what happens”, I just take my quick gain and move on.

I always keep an eye on the intraday 5 min chart of VIX:

Any turn up in VIX gives me an early warning to get ready to take my intraday gains very soon…

This was also a very good entry for trading within the 10 day hourly chart, and a daily chart as well – you need to define which time frame you trade and execute. You may have multiple trades within multiple time frames, why not? Just follow your rules on each trade.

Eva

Don’t ignore VIX signals

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I have heard many explanations how we should look at VIX and what the levels of VIX mean.

My usage of VIX is rather simple: daily chart of VIX for 10 day hourly charts or daily charts trading; five minute intraday chart of VIX for intraday trading. I just apply the general technical rules to that chart to assess the probability of market direction.

In my last blog “Waiting for a longer term resolution” I wrote: “The way the daily chart of VIX looks recently makes me very careful short term.”

What I noticed on the daily chart of VIX a week ago on Friday was: 1) fell below support of 15.5 but was retesting the low from 4-20-11; 2) fell outside the lower BB and was retesting (this one I like especially for a good probability of a snap); 3) MACD histogram was sloping up and MACD lines were ready to cross.

Adding to that the craze in metals (see my mention of parabolic chart of SLV and rising wedge on GLD in my blog “What happened to $?” from two weeks ago) the chance of a market pullback was growing high. Traders know that parabolic moves and rising wedges are bearish and require attention.

Where do we go from here?

Last week’s sell off was nice, but was it enough?

I am looking for opportunities of trades in commodity related ETFs – possibly through EWZ, EWC.

SLV and GLD are trusts. “The purpose of the Trust is to own silver/gold transferred to the Trust in exchange for shares issued by the Trust (iShares)” (Reuters). I think that as such, when the buying hysteria reaches critical mass they may become markets themselves. Why this happens: buying of trust shares, requires buying of more metal by the trusts and that pushes the price of the metal up – and so on. The opposite should be true in panic selling. Very often the shares of trusts will trade higher (or when panic approaches bottoms, lower) than the commodity.

As a rule I avoid trading shares of trusts…

EWZ seems to be in long consolidation – ascending triangle. Many traders by now got used to: “sell at $78- $82”. It will be very interesting what happens if this one is broken above $82. For now I am just trading this one on a 10 day hourly chart basis.

Another possibility is EWC, with nice support $28-$30. I am also trading this one for now only on 10 day hourly chart basis.

And – do not forget to check what our $ is doing. The reversal of last week caught my attention.

The possibility of testing the resistance around $22 is high. The bounce in $ should limit the upward moves in EWC, EWZ and commodities related trades.

Eva

Osama Bin Laden and the market

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After Sunday night’s announcement that Al Qaeda leader Osama Bin Laden was killed, US futures jumped, in anticipation of a market rally. True to form, the market did get a bump early on, but it wasn’t long before the warm and fuzzy feelings evaporated, with the market struggling to keep its early gains.

So, what happened? Why not the big rally everyone has always expected to hear that the leader of such a deadly terrorist group had been dispensed with?

Perhaps we can get some insight by looking at an ongoing poll that CNBC is conducting. In this poll that showed just over 7500 people responding as of 2:00 PM eastern the day after Bin Laden was killed, almost 75% answered no to the question, “Do you feel safer now that U.S. forces have killed Osama Bin Laden.

So, while there was always speculation that the world would be better off with Bin Laden out of the picture, you can see that there’s also plenty of skeptics who believe that his demise won’t do much to make things safer.

In some ways, this reminds me of how the market operates; buy the rumor, sell the news. In other words, the market had already figured out that Bin Laden’s time on this earth was short term at best. Thus, we got the early market bump on the rumor, and then by the time the news had been absorbed, the market was already in the “give me something new” mode.

In fact, we’re in a market that has run a lot lately and is showing signs of being very overbought. So, the events that transpired overnight weren’t enough to outweigh the reality that the market needs to settle down here. Virtually all of the fear indicators are flashing huge overbought signals, from stochasitics, to RSI’s, to the VIX to the Rydex Bull Bear Ratio. Thus, it’s very tough for the market to gain much traction, Bin Laden news notwithstanding.

So, the fact is, the world is now rid of one very bad man, someone who many like minded people around the world looked up to. And, based upon that poll referred to above, there’s likely fear that there will be some type of retaliation for Bin Laden’s death. In the meantime, we’ll have to let our indicators and charts tell us whether or not the market is ready to go higher or lower, regardless of what is going on around us.