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Last weekend, in my Market Forecast, I said,
“There are some talks about Fed cutting interest rates, but, UUP chart is looking pretty strong (see Sector Watch). VIX has room to top 50 this week. Overall, the sentiment on the market is very bearish, and, with a high VIX, it will likely be another volatile week.”
The Fed did cut rates by 50 basis point. The interest-rate-cut effort was a global one; so, the dollar did not get hurt. UUP actually went higher! VIX went almost to 77 on Friday, and, the markets suffered tremendous losses! For the week, the Dow lost 1874.16 points, or -18.15%!! SPX fell 200.01 points, or -18.2%. Nasdaq dropped 297.88 points, or -15.3%.
It was a week of precipitous falling. On Friday, the Dow was down, at one point, more than 500 points again! In our Trading Room, I commented on the VIX:
HappyTrading October 10, 2008 7:22 AM
good morning!
VIX
topped 70! but, that hourly chart still has not peaked. expect a volatile day. probably good to be patient and hold cash.
HappyTrading October 10, 2008 7:23 AM
VIX
15-minute chart has reached top though. But, like so many recent days; it comes down a bit and shoots back up.
The market continued to fall through the morning. Then, during the lunch hour, VIX topped out:
HappyTrading October 10, 2008 9:19 AM
VIX
hit above 80 on both 15-mintue and hourly charts.
The market started bouncing a little and flatten out. With about an hour left in the trading, the market bounced! The Dow came from down more than 500 points all the way into the positive territory! SPX and Nasdaq also turned green. In the end, only Nasdaq was able to hold on to a small gain. Let’s take a look at the charts:
SPX
SPX lost 10.7 points to close just be 900, at 899.22.
Nasdaq
Nasdaq managed to add 4.39 points to close at 1649.51.
On the SPX, we saw “8″ consecutive red candles! That’s gotta be a record of some sort! Nasdaq barely escaped the 8th one! This weekend, around the globe, governments are coming up with plans to collaborate on restoring confidence in the financial system. In Europe, the action plan include guaranteeing loans between banks and governments buying stocks in financial companies. On Friday, Secretary Paulson also announced plans to purchase stocks in U.S. banks. As the markets open around the globe for the new week, the initial reactions are, so far, positive. U.S. market futures are also up! And, guess what? It’s the options expiration week!! VIX‘s daily and weekly charts are all maxed out! I think we’ll need to see VIX drop below 60, early in the week, to get a sustainable bounce. With VIX at 70, and a record high, it has a lot of room to come down to earth. This means that if we see confidence level rise, the markets could have a strong week! We’ll watch VIX carefully and give daily updates. We also have more earning reports coming in, including INTC, DNA, JPM, GOOG, IBM, SLB.
Sector Watch
GLD
GLD tested $90 again last week and still could not break through. It dropped all the way to the 30-day MA on Friday, again, being kept range-bound. Its weekly MAs (not shown here) are still in a bearish formation.
UUP (dollar)
UUP went higher again last week, despite of the rate cut. Its weekly chart still looks strong.
USO (oil)
USO dropped below $70 to close at $66.5! Last week we were watching the support between $70-75. This is now broken. The $70 level could now become a resistance.
Good night and HappyTrading! ™
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