Wang’s Happy Trading

This market is so volatile that it can be annoying! The see-sawing actions just got bigger: up 400 points one day, down 300 the next!

The Dow was down 293 points; SPX lost 32.32 points; and Nasdaq fell 58.30 points.

Almost everything went red today, even the commodities! Or, shall I say especially the commodities!?!?

USO (oil) -4.09%, UNG (natural gas) -5.09%, GLD (gold) -3.59% (Gold is trading around $931.5/ounce, last checked. This past Sunday, when the Fed cut the discount rate, gold jumped to $1030/ounce! That’s a $100 swing!!), SLV (silver) -5.82%, OIH (oil services) -6.24%, XME (metals and mining) -8.19%, DBA (agriculture commodities) -2.31%!!!!

With this type of “see-sawing” market, looking at the index charts alone may or may not give you new information everyday. Tonight, I’m going to add something different.

SPX

Just look at this zig-zag motion of the SPX!! What I’m looking at is that SPX still needs to break at least 1340 on the up-side (for Nasdaq, 2300) and the support is still at 1270 (for Nasdaq, 2100-2200).

So, how does one make sense out of all of this craziness!? Fundamentals? Ha! Everyday, you’ll see people writing articles, or hear analysts making “fundamentally” sound “reasons”, trying to explain the market actions. But, the next day, they’ll likely say something completely the opposite; again, trying make the reasons fit the results! In this volatile environment, it’s hard to make the fundamentals fit! Don’t get me wrong, I’m not saying that you shouldn’t listen to or study fundamentals. But, fundamentals, alone, might not give you what you need. Far worse, they might just make your head spin! On the other hand, technical analysis has a lot more “fundamentals” than what most people think. It can collectively and non-emotionaly indicate the market sentiment out there.

We’ve talked specifically about VIX many times on this site (click here, for example). Especially, recently, VIX has been pretty accurate in predicting the short-term directions of the market.

VIX (10-day hourly chart)

Here’s the hourly chart on VIX (with SPX as a comparison) for the past 10 days. As you can see, the VIX/SPX relationship is essentially, completely, inversed. VIX goes up, market (SPX) goes down. VIX goes down, market goes up! What I often to is use the RSI on VIX. It has been recently very accurate in predicting VIX’s actions. When the RSI gets above 70, VIX is nearing its top; when RSI drops to 30, VIX is closing in on a bottom.

In other words, when VIX is on the top, the market is about to go up; when VIX is on the bottom, the market is preparing to go down.

Yesterday (March 18), for example, the market rallied and rallied and the VIX dropped. Its RSI came to 30. This morning (March 19), the market had no more than 15 minutes of momentum continuation; then, it quickly turned down. This is also why I set limit orders to get out of some of my call positions last night.
HappyTrading
Posted March 19, 2008 at 7:13 am | Permalink (Edit)
good morning!

AAPL
APVDG, rest out at $5.7

Although I must admit, that I thought the market was going to be stronger than its performance today. Now, VIX reached bottom this morning and started to go back up. What happened to the market? The market started to tank!

Hopefully, this can be added to the repertoire of tools that can help you analyze the market in your trading/investing. Now, notice that VIX has not reached the top (70) yet. Tomorrow is also the last day of the week, an options expirations week, no less. So, be very careful out there!

Good night and HappyTrading! ™