Saturday, April 26, 2008

Qs Weekly Update + VIX

Above is the daily, weekly, monthly 3 LRs study of the Qs (30,11,3).
With the Qs up .44 for the week, all time frames are now displaying positive momentum.
This week's daily action managed to close above the LR30 mean on each day, reflecting the upward bias. Even Microsoft's Friday swoon failed to drive the Qs below the mean.
The weekly chart has now reached intermediate resistance at 47.00 on the lower LR30 channel bar. This is an important level to watch. If the Qs break through 47.00 resistance with gusto, the weekly LR30 mean at 49.50 will be the next significant target and 47.00 will become near term support.
Despite the ugliness that's characterized all 2008 so far, the monthly chart reveals the Qs still on an upward track and now sitting pretty dead on the LR30 mean. . .so this is a critical juncture.

The A50 is getting significantly overbought, having now reached Nov 2007 levels. In a robust and growing economy, such enthusiasm would be understandable. In today's market conditions, the sustainability of these levels is questionable.
The A200 has shown some improvement this week, reflecting a larger participation of the NDX components in the recovery. This indicator is also resting in overbought territory and as it approaches the 200 DSMA, signs of reversal should be heeded.
Checking the VIX (above) with the 3 LRs study, we find a distinct change of character as the VIX rides the lower LR30 daily channel down, with no 10/20 SMA cross imminent.
The weekly chart is particularly interesting in the break below LR30 lower channel support. This is the first channel break (down) in over a year and may be a harbinger of a return to VIX levels suggested by the monthly LR30 channel mean (11.70) or, near term, the upper channel (13.60). Lower volatility means lower fear. Have traders become complacent, are they in denial, or do they truly believe the worst is over? Trends in the VIX suggest the market is on a roll.
Of course, this is all speculation based on mathematical probability studies which are just that, probabilities. Significant geo-economic developments such as a world food crisis, the collapse of the US housing market, the continued plunge of the US dollar, another major hedge fund collapse, a Chinese invasion, rampaging elephants, a new world-wide epidemic (what ever happened to bird-flu?) or the plots of lurking evil-doers could change these charts in a flash.
The strategy I have followed since the first of the year has been to focus on daytrading tactics, fading gaps and riding the intraday pivot trades guided by the parabolics, the 10/20 MAs and my stable of other technical indicators. With the markets currently overbought (my opinion) in the face deteriorating economic conditions, I'm not ready to commit to longer term positions on either side, but continue to manage risk by basically staying out of the line of fire as much as possible.

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