Where To Now?
That must’ve been the shortest post-election honeymoon ever!
So where do we go for the rest of November? Here’s my fitty-sens of analysis …
While the VIX wears a beautiful Long Dawn Line on a 5th candle reversal, the DOW looks highly fashionable for this Autumn’s collection as it sports a Short Dusk Line which is the fashion statement for Quarter 4.
Let’s look at some market facts …
Earnings are still 50/50 but outlooks suck. Most of the DOW components have disappointed one way or another. Economic data really sucks and tomorrow’s NFP is going to add to that sucky feeling. Although infrastructure, alternative energy and healthcare stocks may see a rally, the broader market will see continued weakness till January 2009 as fund managers stay away from the market and retailers get no leadership while Bonds and Currencies continue to make gains on flight-to-safety and flight-to-quality investors.
Volatility came down from its 90s only because earnings season is coming to an end – this is a typical pattern. I’ve heard some crazy stuff in the market and amongst the most idiotic things being bantered is that the VIX is down because the market is rallying and recovering … here’s another classic – the VIX was high because the Fund Managers were dumping stock.
First of all, the VIX being high had nothing to do with the FMs. When FMs dump stock, they dump stock – that does not move the VIX because the VIX’s movement is based on Options activity. The VIX went up because of excessive Put buying that leveraged on the FMs dumping stock. And to say that the VIX is down as a result of the market rally is not accurate because the VIX does not move the market and it’s not down … not when it still 100% above its usual bearish level of 25. The VIX is still up. But it came down from its highs because earnings season is almost over. That’s all. It’s still high.
More facts … Having posted a loss in GDP, America is on the verge of announcing an official state of recession. Lower employment, higher than ever Initial Claims and lower productivity levels all point to an ailing economy which is reducing its spending habits. Oil won’t rally thus fueling (pun not intended) speculation that the black stuff is seeing demand destruction at its worst and will only get worse. Globally, the recession contagent continues to spread, liquidity continues to plague and governments continue to bail – to cut a very long story short.
Obama, the once revered savior of the economy will have no money to spur any more injections because by the time he takes office on 20th Jan 09, the $70B donation will have been distributed and consumed. How he will get more money is a huge question mark as his predecessors are not about to leave him a war-chest to make his job any easier than it should be.
So where are we going? I will not take a direction now. I’ll be trading the market in whatever direction it takes and for now, I am maintaining my view of DOW at 9,500 by Apr/May 09. My downside support remains at 7,400 and 7,080 with no further upside than 10,800 and 11,200.
For November, I am looking at a range – DOW’s low should hold above 8,380 and the high should resist at 10,200.
If I don’t get a bullish bounce at 9,080, it’s bye bye DOW all the way to 7,800 again … and maybe beyond that too. A bounce at 9,080 will see a second wave that may take DOW up to 10,500.
So while others burn and hurt, I am advising all my traders to take it easy and cautiously. Curb the greed, mind the fear and stay calm always.
Cheers to all!
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