Monday, October 6, 2008

10.06.08 - Capitulation in Progress

For those who were looking for capitulation, this is it. However, volume is on the low side. Pick spots and with sizes you can sleep with. VIX has topped 55. I was a 'little' worried about this with futures down Sunday and the continued negativity in the news-cycle.

Comment: Problem with the VIX stretch here -- as much as I'm willing to call this capitulation, it is hardly a stock throw away at this volume level -- more of a continued buyer's strike. Investors have been conditioned to hold tight in times like this, and likewise may just be looking the other way at this point, turning off their screens. Also, a great deal of selling has already occurred and a quarter of stocks are non-shortable. Meanwhile, there is a lot of money on the sidelines. At what point will institutions see value and start legging back in?

I'll go out on a limb and say this gap will fill in the days or weeks ahead (add: and no, still not saying it's the bottom for this cycle), but it's going to take time for earnings outlooks, lending rates and volatility to come in for trust to be reestablished. Here goes congress now... oh boy. I can't say "poor" Fuld, but tell me what this is going to solve in the midst of this crisis. Too painful to listen to; I'm turning it off.

9:45AM PST: RSI[2] = 3.4. A little bit of predictable trouble at the declining VWAP. Cumulative Tick is about as bad as it gets, but I'd be reticent about getting short here! There again too, I was many days last week and missed out on much of the huge directional vol the program traders are giving us. It really takes a suspension of disbelief to pile on after the market has just moved such a huge amount in both absolute and relative terms. Time to heat up that popcorn? Ted Spread has risen to 3.90.

11:25AM PST: So how is that popcorn tasting? Wait until the close plus (to Brian's point) real evidence of the turn measured in price. SPX 1,000 anyone? VIX is near 57. On Black Monday it was actually absurdly higher -- but we are most certainly within that "fat tail" I've been concerned about.

12:05PM PST: Down trend challenge and tick has been indicating a shift to a bid, will it break? Looks like it, but last hour vol is upon us...

12:15PM PST: Now the VWAP (SPY $104)...? Bang!

12:40PM PST: More caution ahead of the close. A closing note, if this is "forced selling," then it should be bought, no? Look at all the titanic action being taken around the world to stabilize the situation -- back under the VWAPs we go... and they're holding...

12:50PM PST: CNBC Commentators are never "happy" with sell-offs these days. It's no wonder price keeps falling. When VIX was 20, they wanted 30, when it hit 30, they wanted 40, now we are at 58... The Dow was down 800 points at one time today -- "too orderly" they say -- "needs to close on the lows" -- "volume too light" -- Please people!

Close: Good for BAC to clear the decks on a down day instead of sapping the energy out of an up day, which is what we have been seeing from most companies/countries hoping bad news will get swept under the carpet. Here is a clue, it never does and it has been killing us on the bounce.

Reading ~ Three Views:

o Quant. Edges - Elevated VIX Study/ Emerging Edge
o Traderfeed - Indicator Update/ Moneyflow Remains Weak
o AlphaTrends - Reasons Not to Buy (Fair enough - but read on!)
o AlphaTrends - Dow 10,0000/ Measured Moves

Never Investment Advice


Anonymous said...

Morning Jeff,,

Looks like the overnight bunch lacks conviction,, this market is,,for lack or a better word, weak
everyone is waiting for 'some' kind of bad news,, unless confid. is restored in some way, scalping is going to stay the method,,and thats not going to help...


Jeff Pietsch CFA, Esq said...

Yup... every peak sold and every valley...