Wednesday, August 22, 2007

VIX 10% below 20 DSMA

The Qs extended their gains today, still showing greater strength than the DOW, but accomplishing it on the second lowest volume in the past three weeks. The Qs are at the 20 DSMA. This is the 4th day up and the Qs are tickling the overbought band. After hours the globex is way up, presumably on BAC announcement to bail out CFC. This should create a large gap up in the morning and gap faders might take note of Tuesday's post.
The last 1 1/2 hours of the market showed consistent and sustained buying with upslope TICK and NYAD and significantly downslope VIX. Closing TICK of 841 is bullish.
The VIX has now retreated to close 10% below the 20DSMA. This is typically a signal of oversold levels, but these are not typical times. Lacking any intervening data, the BAC/CFC news will carry the markets flying in the morning, along with a continuing decline in the VIX. The question is will the gap hold?
One characteristic of market activity during the past month is that classic technical patterns have developed in a greatly accelerated mode. That is, MA crosses and RSI breaks that normally transpire over 4-10 days now occur in 1 or 2 days, ostensibly reflecting the elevated volatility. I suspect many traders, including myself, did not immediately catch on to the new warp speed paradigm of market dynamics, and were thus frustrated in the process. I also suspect that it's not over yet.

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