06/25/2009 Market Recap: VIX new low

Summary:

Not convinced by today's rally.

Expect a pullback as early as tomorrow.

	Trend	Momentum	Comments - Sample for using the trend table.
Long-term	Down		Idea for trading intermediate-term under primary down trend.
Intermediate	Down	Neutral
Short-term	Up*	Neutral

I’m not convinced by today’s rally:

1. 7.1.0 Use n vs n Rule to Identify a Trend Change, 3 up days vs 1 down day, still bears went further, therefore I cannot say that the market is bullish. SPX 927 is the key, if the market closes above it then I have to re-evaluate the call for an intermediate-term down trend. For bears no panic is necessary, even if SPX 927 were broken tomorrow because very short-term already is very overbought, so at least next week bears would have a chance to escape.

2. There are 2 dominant “Russell 3000 Dominant Price-Volume Relationships” today, 1361 stocks price up on increased volume which is bullish, but on the other hand, there are 1216 stocks price up on decreased volume which is bearish. A strong day ideally should have 2000+ stocks price up on increased volume so I cannot say today is a strong day.

3. Although SPX didn’t even close to a SWING HIGH but VIX already reached a new low today, this is a negative divergence which means the complacency is high.

4. I’ve discussed “All Up Day” in the after bell Quick Summary, although today missed a single point to be an “All Up Day”, but at least both stock and bond were up a lot. Since normally bond and stock are reversely correlated, so either stock lied or bond lied today. And who’s lying, we might know as early as tomorrow. Anyway, from 3.0.3 20 Year Treasury Bond Fund iShares (TLT Daily), the Head and Shoulders Bottom should be confirmed upon the breakout today which means probably the bond will rise further.

Tomorrow, I expect a pullback.

The short-term model from www.sentimentrader.com is the main reason for arguing a pullback tomorrow.

From the above chart we can see that there’re 2 exceptions for not pulling back big when STEM.MR was overbought. The question is if we’re going to have another exception this time? I’ve compared today’s case with the previous 2 cases in the below chart. Since the strength of today is far less than those of 2 cases while STEM.MR is now almost equally overbought than those of 2 cases, so I believe that the pullback this time wouldn’t be weak.

1.0.3 S&P 500 SPDRs (SPY 30 min), possible Bearish Rising Wedge in the forming. ChiOsc is a little bit too high which was fairly accurate in predicting a pullback.

2.0.0 Volatility Index (Daily), the famous VIX ENV10 is oversold today also the famous VIX BB setup is (half) triggered. Look at the red dashed lines, at least these 2 combinations worked pretty good recently. This also means a possible pullback tomorrow.