Friday, September 28, 2007

A modest backstep

The markets failed to follow through today, as was widely anticipated. We need to see a reversal, or at least a consolidation of recent September gains before blasting off in to the traditional power months of October-January. Also as expected, the Qs showed considerable resilience relative to the other indexes, especially into the close, and although the volume was about the same as yesterday, selldowns were treated as buying opportunities. Cucca does a great job of showing the trap door setup in the Qs this morning, and that was a classic example. I suspect this weakness may follow through on Monday but am also expecting a resumption of the uptrend fairly quickly. Tomorrow I'll post a little study of Qs behavior around the end of the quarter that may help put things in perspective.
The VIX finally got a nudge off the lower band with an initial target of the 10 DSMA which we may see on Monday. Based on the VIX study I cited yesterday, once the VIX departs from an 18% variance we can expect it to hit the 16 DMSA within 4 days 82% of the time. That would return us to a VIX reading of 21, approximately in the middle of the bands and set up for another run down.

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