Are stock markets settling down?

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After the market meltdown on Monday and for the first part of yesterday and subsequent reversal, Kevin Lane of Fusion IQ said: “We thought it would be wise to review our VIX deviation from trend (i.e. its deviation from its 50-day moving average) and Put/Call indicators to see what they implied. As seen in the charts below, the VIX deviation indicator from trend threw off the second highest reading it has given since 1996. Today’s reading was surpassed only by the November 2008 reading, which led to a 25+% rally over the following two months. Additionally our CBOE Total Equity and Index Put/Call readings were also very high.

“Both indicators are suggestive of an overbuild in near-term negative sentiment and indicate that a counter-trend rally of some magnitude may ensue. Additionally we like that the economic bellwether Transportation Index held above key support near 4,045 (this also coincided with its 200-day moving average),” concluded Lane.

Source: Fusion IQ, May 25, 2010.

Source: Fusion IQ, May 25, 2010.

Interestingly, the S&P 500 was down by 1.3% on Monday and marginally up by 0.04% yesterday. However, the VIX Index was down by 4.4% on Monday and strongly higher by 9.7% yesterday. “Are investors just apathetic at this point?” asked Bespoke. Time will tell, but the panic seems to be abating.

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2 comments to Are stock markets settling down?

  • E-mailed Fusion (to which I subscribe) that the “point” made no sense as the S&P was at 880 or so on 10/24/2008, and at 868 on 12/24…hardly a 25% rally. They responded that there WAS a 25% rally, INTO JANUARY of ’09. Then, this am, checked for that, and STILL no 25% rally…highest was Jan 6th at high/lows of 944/927, then on 1/30 to 870/861…am about to query again re. “the changed” periods still do not show such a 25% gain??? (I got my numbers from Yahoo Finance S&P Historical Daily Returns, Fusion told me would send a Bloomberg chart showing the 25%…somebody or some chart is wrong!

  • As “followup” to earlier comment, just received chart from Kevin showing that from the intraday low on November 21st to the intraday high of January 6th, there WAS a 27.37% rise…though have no idea of how ANY investor could hit both (and dates’ closes were only a 16.8% rise…plus the question of that low occurring four weeks after that VIX “tipoff”, with steep slides occurring from the 10/24 VIX signal and then immediately following the 1/6 “high”.
    Should add though that might disagree with the value of this particular signal, subscribing to Fusion has done very well for me.

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