Market Looking Bullish
We are still in a fundamental and news-driven environment, but the technicals are becoming more bullish by the day and we may have potentially priced in most of the bad news. If you look at the VIX, which is the index for how volatile the market is expected to be in the coming month, you will see that we have formed a potential top and the expectations are that we will have less volatility and a more positive market ahead.
The capitulation bottom that formed on August 16th might be the low for the year and we may have a tradable rally forming. According to Dorsey Wright, an institutional technical analysis firm, the wash out of investor confidence experienced during August 2007 was the lowest confidence reading since October of 2002, which just so happens to be the last huge bottom.
The next huge pieces of fundamental news to come out will be the employment numbers this Friday, September 7th, the PPI and CPI in the middle of the month, and the Federal Reserve Meeting on September 18th to decide on interest rates (see the upcoming economic calendar). The brokerage stocks will release their earnings in the third week of September. Their earnings are expected to be dismal. How the market reacts will be crucial because if their earnings are horrible and the stocks rally, it will be safe to say that most of the bad news is priced into those stocks and they have bottomed. If the financials can rally, this will provide a huge lift to the S&P 500.
Technically, the market is saying that the worst is behind us. A tradable rally is forming where buying on the dips will be profitable and technical trading patterns and strategies can be used once again. This will be put to the test the next time we have some bad news. If the market does not sell off hard and no technical breaks downs appear, it will be safe to get long. The ultimate proof will be if we get bad news and the market actually rallies. Then you will know we have bottomed.
The consumer sentiment factoid is an interesting one, it is possible that could be a signal. I think the market is bound to have a selloff of some kind sometime soon after this nice run, but I completely agree that the technicals of the market have improved greatly and the bottom may well have already been hit.
It’s amazing how one industry can impact the market so hard. I have found that the best deals are happening right now, and I welcome to fall. *=)
oops, I meant that I welcome THE fall.
It’s late.
Good post, tracking the VIX is a must. I’m enjoying the higher VIX for option writing purposes. I could see the market staying somewhat sideways until we find out how much the Fed will cut rates. I’m curious if we’ll see any “selling on the news” type action. Here’s my post I wrote on the VIX a couple of weeks ago:
http://mytradersjournal.com/stock-options/2007/08/15/cboe-vix-finds-recent-highs/