Tuesday, August 14, 2007

Watching the Broker-Dealer Index (XBD) Closely

...to see if the recent 208 low holds.

3 comments:

  1. VIX caller wins again!

    As you said, uncanny.

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  2. Today the market was in an orderly decline. There is no panic selling, this seems to me we're heading down yet again.
    Bill, based on your research on VIX, do you feel today we should see more jump in VIX based on today's decline? If that's the case, we may need some real panic before we can call a bottom. What do you think?
    As always, like your research!

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  3. ST,

    I think you nailed it with the 'orderly decline' moniker. Looking at the DJIA, SPX, Nas and RUT, I see four different charts in terms of how they did today vis-a-vis the 8/6 lows, position relative to the 200 SMAs, etc. In aggregate, it is much harder to make the bull case from these charts, yet the previous lows have not been completely taken out.

    The selling I was watching today was a lot of selling into rallies, less panic dumping once new lows were made.

    Given the cumulative panic and selling over the past month or so, I am not convinced that this bottom needs another day that trumps them all -- something along the lines of a classic capitualtion day with Dow -600 or more on huge volume. Then again, it is possible to continue to slide in an orderly fashion with the VIX never breaking above 30.

    I still think that VIX 29.84 will not be taken out in the near future. If it is going to happen, I think the bears need to do it by next Monday, by which time the gravitational pull on the VIX should be fairly strong. I think we will test some significant resistance across the board tomorrow and if the bulls can turn the tide, we are likely to have a fairly solid bottom. If the bears can keep the upper hand, then there is the potential for an extended bear market to begin that could give up a lot of the post-2002 gains.

    I am still contrarian bullish (VIX, ISEE, etc.), but am more concerned about the strength of major indices than the sentiment indicators in the next few days.

    I think tomorrow will tell us a lot, then we have options expiration and weekend headline risk to worry about. FWLIW, I bought a bunch of VIX puts in the last hour...

    Cheers and good trading,

    -Bill

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