Monday, July 2, 2007

“Tops Aren’t Built on Fear”

One nice thing about Bloglines is that you can drink from the blogging firehose at whatever time and pace you desire. In my case, this means a week or so of posts from the 149 blogs (see the link above if you are wondering how this is possible) for which I subscribe to their feed. Sure, my head is spinning and my brain probably looks like a python that swallowed a hippo, but it has been a great way for me to get back up to speed in a hurry.

Among the many posts I came across today was one from a blog I have yet to feature in my links: Stock Trading Update. In a post from earlier today, the London-based Securities Research Services team evaluates the current state of the market as follows:

“We have been reading whispers of a major market top forming, but the long term charts just do not support this at this time. Likewise, overly bearish sentiment does not support this either (remember, market tops are not built out of fear, but on enthusiasm). Most likely, based on the charts, we are looking at another few weeks to flat, to slightly negative trading, followed by a resumption of the major trend.”

Frankly, I couldn’t have said it better myself and if you study the chart below you can see that since the advent of the VIX, tops in the SPX have not coincided with spikes in the so-called fear index.


dk said...

Disgusting reptile images aside, I'm glad to see you nourishing yourself on the bounty of the blogosphere. Not sure how well most of this stuff keeps, but alas I digress...

"Tops aren't built on fear" is one that I also couldn't have said better myself. Don't be too distracted by POI (I'm not). It's just good to see stocks climb amidst some fear, especially when "fear" is little more than a reversion to mean -- and we're not even there yet.

nodoodahs said...

You need to have predominance of "Fearless Forecasters" to make a top. Today, we have a predominance of "Foreless Fearcasters."

Unknown said...

that's a cool chart, Bill. What I find fascinating in that chart as well is the rise in Vix durng the 90's even as the stock market rocketed higher. I think that era of rising Vix with a rising market might be here again.

Unknown said...

.. so long as OTC derivatives don't completely crash everything. :)

Bill Luby said...

Glad to find you here in the comment section, Jim.

Absent any more historical information, I'm still deliberating internally whether the positively correlated VIX and broader markets during the 95-99 bull run was an aberration or something to look for on a more regular basis.

I'm still crunching more numbers on this and entertaining a variety of theories. One thing is clear: the investment landscape has changed a lot in the past decade (derivatives, hedge funds, ETFs, electronic trading, etc.) -- so I'm not convinced that history is necessarily a great teacher in this case.

bzbtrader said...

While the markets dither around in nosebleed territory and confound the bearish)forecasts of the Stock Traders Almanac, the technical indicators support an upside bias for the next cycle move. See $SPX:$VIX daily on with RSI(3). I'm unable to import the chart into "comments".

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