08/11 Member Discussion - BullBear Trading: Stock and Financial Market Technical Analysis2024-03-28T17:33:49Zhttps://www.thebullbear.com/forum/topics/08-11-member-discussion?commentId=3301355%3AComment%3A51017&feed=yes&xn_auth=no
It would be inappropriate f…tag:www.thebullbear.com,2011-09-03:3301355:Comment:532272011-09-03T03:53:19.289ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
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<p>It would be inappropriate for Steve to post other people's work to enrich the content of the Bullbear.com. Sidekick John has no problem posting and oblige to add content for BBT. Mr. Bruce Pile does not write frequently, but each piece he wrote was insightful.</p>
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<p>The Big Gold Stock Disconnect</p>
<p>Mr. Bruce Pile</p>
<p>Gold bugs are bemoaning how gold stocks are not riding the gold rocket. They are vastly outperforming the miserable broad market, but so…</p>
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<p>It would be inappropriate for Steve to post other people's work to enrich the content of the Bullbear.com. Sidekick John has no problem posting and oblige to add content for BBT. Mr. Bruce Pile does not write frequently, but each piece he wrote was insightful.</p>
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<p>The Big Gold Stock Disconnect</p>
<p>Mr. Bruce Pile</p>
<p>Gold bugs are bemoaning how gold stocks are not riding the gold rocket. They are vastly outperforming the miserable broad market, but so is cash, and the HUI is barely outperforming cash. Why aren't the gold miners going berserk like the bullion? Well, maybe that's just the problem -- they're going berserk. That is just what mining stock investors have been thinking the gold price is doing, and they must figure a stable, average price for gold will anticipate future financial performance. They tend to ignore moves in gold that are too fast to be trusted, which may not be there a year or more into the future.</p>
<p>It has always been this way for the gold miners. They had a heyday back in the 1970s gold bull market. But if you examine a chart of that whole period where the gold stock average is charted alongside the gold price, you clearly see this believability effect:</p>
<p>[Click all to enlarge]<br/><a href="http://static.seekingalpha.com/uploads/2011/8/31/saupload_gold_stocks_vs_gold__252770s.jpg"><img src="http://static.seekingalpha.com/uploads/2011/8/31/saupload_gold_stocks_vs_gold__252770s_1.jpg"/></a><br/>The green line is the gold price and the black line is a representative basket of gold stocks. If you look at the rise in gold stocks in 1973 and 1974 (black line), you see that this strong climb in the gold stocks took place over the course of one of the most brutal bear market collapses in history:<br/><a href="http://static.seekingalpha.com/uploads/2011/8/31/saupload_73bear.png"><img src="http://static.seekingalpha.com/uploads/2011/8/31/saupload_73bear_1.png"/></a><br/>We think our 2008 was bad, but if you add a zero to the above Dow chart figures, you see that this was just as bad. The S&P 500 quickly lost about 50%. The second thing that stands out about how the gold stocks did this massive '73/'74 climb was that the price of gold did a slow, orderly climb over this time period. It did <font size="2">not</font> go berserk. Mining investors were <font size="2">believers</font> in this gold climb and readily moved the stocks up in lock step with the gold price, even out-performing gold, never mind the Dow crashing around them.</p>
<p>In sharp contrast, look at the behavior in 1978 and 1979. This stock market was very placid compared to the one in 1973-74, and gold was accelerating upward but a little too fast to be believable. And the gold stocks lagged far behind. It's interesting that at the time of gold's peak in January of 1980, the miners were way behind the curve, but caught up in a mighty rush over the next year. This is because, even after the gold price peaked, it stayed very high for another year. So the miners' investors were being converted to the new level, and the stocks climbed big. The rule seems to be that a fast climbing gold price must stay elevated for at least a year before mining investors take a new level seriously.</p>
<p>This believability thing is our current problem with the gold stocks. There is so much skepticism about the climb in gold; all you hear is bubble talk. The miners are priced for about a $1200 gold price. But it has been over a year and a half since gold first traded at $1200. The mining investors are going to have to get religion before very long.</p>
<p>But is this near the end of the bull market as in 1980, when the miner investors got religion just in time for the start of gold's bear market of the next 20 years? At the end of the '70s gold bull, it was all about the inflation hedge; 12 % inflation was eating us alive. That was the big political issue of the day. Inflation was public enemy #1 and the WIN campaign (Whip Inflation Now) was on all our minds. If you were like most people, you were watching everything you pay for go up 12% or more each year and wondering how your wages and savings account were ever going to keep up with that. The economy was stagnant. Everybody was wondering how it all was going to end. Survivalist books were all the rage.</p>
<p>But there was no global mountain of debt. This was before the marvelous invention of the financial weapons of mass destruction, back in the simple days. With our present gold bull market, we have no inflation but an out-of-control global rampage of debt that is eating us alive. This is our new public enemy #1. It's quite a different bull market really. And I think the end of it won't happen until some kind of new, stable set of global currencies emerge that are gold- and silver-backed, along with perhaps some other commodities. <font><font><img src="http://static.seekingalpha.com/uploads/2011/8/31/saupload_blank.png" alt="Link"/></font></font></p>
<p>You often hear the guidance that this gold bull will die when interest rates are ramped up. But as I outlined in my article "Will Higher Interest Rates Kill The Gold Bull?" that's certainly not what happened in the 1970s, when it was all about rates. Interest and gold did a powerful climb together when they finally decided to defend the dollar to the death. But let's suppose for a moment that the rate guidance is right and the up cycle in rates ends the bull. If you believe that, then you were just given a guarantee from Ben Bernanke that our gold bull will live until at least 2013, where ultra low rates will, according to the Fed's latest statement, run to.</p>
<p>But even out at the rate ramp up, whenever that begins, you have a vastly different dynamic than with past gold bull markets. In the good ol' '70s, you just had an inflation problem. That can be killed with high enough interest rates and it was. Paul Volcker came to town, and it was slam, bang, a quick and deadly kill of inflation, and we were fine. And the gold bull quickly bit the dust. But if they tried that now on the mountain of debt that's already choking us to death on the lowest interest rates in history, that could be a problem.</p>
<p>Be that as it may, the current gold bull is all about the debt/currency problem, not interest rates. Its ultimate solution will not be as quick and easy as the '70s and will probably involve the very thing that would have to reprice gold to much higher levels: Currency backing. This all won't happen expeditiously. Corrections will come and go, with increasing speed and less predictability. But will the gold bull market go away anytime soon? Probably not. As I heard a commentator say the other day, if you think the top of the gold bull is here, I have one question for you: "Where is a Paul Volcker who is going to make that happen?" Time-wise and price-wise, it may look like it's about time for it to end by a 1970s comparison, but this isn't the 1970s. If only it was.</p>
<p>I agree with Jim Cramer when he said on <em>Mad Money</em> last week that gold is one of the long term power trends from here that should be bought and held. He points out that gold historically has made up 5% of all portfolios. But now, with an unprecedented global currency crisis raging, and despite all the bubble talk, it makes up only about 1.5% of all investment. The bubble is all talk and no dough.</p>
<p>A negative for the gold mining stocks has been the nagging competition for investor dollars posed by the rash of new bullion ETFs. Why risk mining company problems when you can now own the metal without having to take delivery? But as these new products have proliferated, so has the worry over paper versus physical gold ownership. Some paper vehicles may run into problems with insufficient metal backing in times of sharp metal price moves and may not give their shareholders the metal they think they own. If price tracking problems like this arise, or even if the worry over it grows, it will reverse the negative that ETFs have been presenting to gold miner ownership. Gold miners don't mine paper.</p>
<p>This all has extremely bullish implications for the gold stocks. It means the $1200 stable average gold price the HUI has been stuck at for over a year is not even in the same ball park as what a strengthening climb in gold will likely produce. There may be a powerful catch up move brewing.</p>
<p>Their technical condition is showing that. Even if you believe the general stock market is going to be bad, you have to take note of what the gold stocks did in 1973-74. When you consider the vastly better relative performance of the miners over our recent market crash compared to the 2008 behavior, you could suspect a massive rally in the miners is approaching. Cramer, who belittles technical reads (but goes over a thick book of charts every week) noted last week that the gold miners were getting "jiggy." I guess that's the best technical term he could come up with, but I think I know what he means.</p>
<p>This jigginess will especially apply to those that are currently in production with meaningful cash-flow (less controlled by property development news). Some examples of such names with very low cash-flow valuations relative to a possible fast climb in revenue:</p>
<p><font size="2">Stock, Forward P/E, Price/cash-flow<br/></font><a href="http://seekingalpha.com/symbol/auy" title="Yamana Gold Inc."><font color="#024999">AUY</font></a>, Yamana Gold, 14, 13<br/><a href="http://seekingalpha.com/symbol/nsu" title="Nevsun Resources Ltd"><font color="#024999">NSU</font></a>, Nevsun Resources, 30, 9<br/><a href="http://seekingalpha.com/symbol/ric" title="Richmont Mines, Inc"><font color="#024999">RIC</font></a>, Richmont Mines, 14, 10<br/><a href="http://seekingalpha.com/symbol/kgc" title="Kinross Gold Corporation"><font color="#024999">KGC</font></a>, Kinross Gold, 17, 15<br/><a href="http://seekingalpha.com/symbol/abx" title="Barrick Gold Corporation"><font color="#024999">ABX</font></a>, Barrick Gold, 10, 13<br/><a href="http://seekingalpha.com/symbol/hmy" title="Harmony Gold Mining Company Limited"><font color="#024999">HMY</font></a>, Harmony Gold, 13, 17</p>
<p><strong>Disclosure:</strong> I am long <a href="http://seekingalpha.com/symbol/auy"><font color="#024999">AUY</font></a>, <a href="http://seekingalpha.com/symbol/nsu"><font color="#024999">NSU</font></a>, <a href="http://seekingalpha.com/symbol/ric"><font color="#024999">RIC</font></a>, <a href="http://seekingalpha.com/symbol/kgc"><font color="#024999">KGC</font></a>, <a href="http://seekingalpha.com/symbol/abx"><font color="#024999">ABX</font></a>, <a href="http://seekingalpha.com/symbol/hmy"><font color="#024999">HMY</font></a>.</p> Excerpt from Louis Navellier'…tag:www.thebullbear.com,2011-09-03:3301355:Comment:533282011-09-03T03:25:24.197ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
<p>Excerpt from Louis Navellier's Latest Article:</p>
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<p>"Now, I'm very bullish about the profit opportunities for stocks in the remainder of the year. Once we get past the Labor Day holiday this weekend, trading volumes will return and investors will realize that earnings growth has been phenomenal and stocks are cheap. But, there are some economic issues that have not yet been worked out that will weigh on the market."</p>
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<p>Mr. Navellier does not time the stock market and…</p>
<p>Excerpt from Louis Navellier's Latest Article:</p>
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<p>"Now, I'm very bullish about the profit opportunities for stocks in the remainder of the year. Once we get past the Labor Day holiday this weekend, trading volumes will return and investors will realize that earnings growth has been phenomenal and stocks are cheap. But, there are some economic issues that have not yet been worked out that will weigh on the market."</p>
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<p>Mr. Navellier does not time the stock market and focus on investing in high growth alpha stocks. He can hold onto a stock that lost 20% for a long time if he thinks there is a misprice.</p> While the offical position of…tag:www.thebullbear.com,2011-09-02:3301355:Comment:534142011-09-02T15:33:08.760ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
While the offical position of VictorVest at the moment is "VectorVest advocates caution when buying stocks at this time". Its model portfilios has already exited to cash on the day before yesterday. From yesterday's high , VictorVest BuySell Ratio has dropped from .32 to .15 and MTI from .9 to .74 showing a rapid and consistent decline that does not go well with the theme of possibly more upside to this market short term. ??
While the offical position of VictorVest at the moment is "VectorVest advocates caution when buying stocks at this time". Its model portfilios has already exited to cash on the day before yesterday. From yesterday's high , VictorVest BuySell Ratio has dropped from .32 to .15 and MTI from .9 to .74 showing a rapid and consistent decline that does not go well with the theme of possibly more upside to this market short term. ?? Excerpts from Fibtimer:
Big M…tag:www.thebullbear.com,2011-09-01:3301355:Comment:529192011-09-01T13:27:14.868ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
<p>Excerpts from Fibtimer:</p>
<h3 class="entry"><a href="http://timing.typepad.com/timer/2011/08/big-move-ahead-for-ishares-silver-trust-nyse-slv-.html">Big Move Ahead for Ishares Silver Trust (NYSE: SLV)</a></h3>
<div class="entry"><div class="entry"><p>August 30, 2011</p>
<p>Shares of Ishares Silver Trust (NYSE: SLV) are developing a pattern on their daily chart that points to a likely big move ahead.</p>
<p>SLV has been recovering from its steep May decline and over the past two months has…</p>
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<p>Excerpts from Fibtimer:</p>
<h3 class="entry"><a href="http://timing.typepad.com/timer/2011/08/big-move-ahead-for-ishares-silver-trust-nyse-slv-.html">Big Move Ahead for Ishares Silver Trust (NYSE: SLV)</a></h3>
<div class="entry"><div class="entry"><p>August 30, 2011</p>
<p>Shares of Ishares Silver Trust (NYSE: SLV) are developing a pattern on their daily chart that points to a likely big move ahead.</p>
<p>SLV has been recovering from its steep May decline and over the past two months has had three pullbacks to higher lows, on June 27, Aug 9 and Aug 24.</p>
<p>If you draw a line through the lows you get a rising trend support line.</p>
<p>Also, if you draw a line between the April rally highs and the August 22 rally highs, you get a declining trend resistance line.</p>
<p>A break of either would likely result in follow-through buying or selling, in the direction of the break, in coming weeks.</p>
<p>Resistance is currently at about $42 and support at about $38.50.</p>
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</div> Excerpts from McClellan Fina…tag:www.thebullbear.com,2011-08-31:3301355:Comment:526292011-08-31T15:34:05.921ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
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<tbody><tr><td align="left" bgcolor="#FFFFFF"><p><a href="http://www.mcoscillator.com/">E</a>xcerpts from McClellan Finanical Publications:</p>
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<tr><td align="left" bgcolor="#FFFFFF" valign="top"><img alt="Fosback Absolute Breadth Index" height="330" src="http://www.mcoscillator.com/data/charts/weekly/Fosback_Abs_Breadth.gif" title="Fosback Absolute Breadth Index" width="600"></img> <br></br><span><b>August 26, 2011</b></span> <br></br><p> </p>
<p>With the sharp price drop in August 2011 came the side effect of large magnitude numbers for the daily breadth, meaning Advances minus Declines. Looking at that daily A-D…</p>
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<tbody><tr><td align="left" bgcolor="#FFFFFF"><p><a href="http://www.mcoscillator.com/">E</a>xcerpts from McClellan Finanical Publications:</p>
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<tr><td align="left" bgcolor="#FFFFFF" valign="top"><img src="http://www.mcoscillator.com/data/charts/weekly/Fosback_Abs_Breadth.gif" alt="Fosback Absolute Breadth Index" title="Fosback Absolute Breadth Index" width="600" height="330"/><br/><span><b>August 26, 2011</b></span> <br/>
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<p>With the sharp price drop in August 2011 came the side effect of large magnitude numbers for the daily breadth, meaning Advances minus Declines. Looking at that daily A-D difference is the basis for calculating the McClellan Oscillator and Summation Index, but others have used that data in many different ways.</p>
<p>Norman Fosback is a legendary technical analyst, who developed several tools and indicators over the years. One of them is in this week's chart, which looks at the absolute value of the daily breadth numbers. That means it ignores whether the A-D difference is positive or negative, and looks only at how large the number is. Fosback found years ago that bigger absolute breadth numbers seemed to occur around bottoms, whereas quieter numbers tended to be a sign of a top. That's still true today.</p>
<p>The indicator in this week's chart smoothes the daily absolute breadth numbers with a 21-day simple moving average (SMA). It is worth noting that the range of values in the last few years has gotten a lot bigger than what it was before the elimination of the uptick rule in 2007. Greater daily volatility also shows up in other ways, such as the number of <a href="http://www.mcoscillator.com/learning_center/weekly_chart/10_to_1_up_volume_shows_initiation/">10 to 1 up or down volume</a> days.</p>
<p>When the market is operating in an illiquid environment, prices have to travel farther to find where the remaining liquidity is hiding. This leads to bigger negative days for daily breadth, and then the snapback up moves tend to get most of the stocks going up together as well. So you see bigger A-D numbers on both down days and up days, which drives up the value of this indicator. </p>
<p>At some point, those bigger numbers take this indicator to an extreme value like the one we see at the right end of the chart. Those high indicator readings are reliably associated with important bottoms for the major stock market indices, so it is important to note that we are seeing such a condition in late August 2011. It is also important to note, however, that the highest readings for this indicator do not always mark the bottom for stock prices. </p>
<p>So we can note the message about a bottoming condition that this indicator conveys, but we have to switch to other tools for knowing more precisely when the bottom has arrived. </p>
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</table> The sudden drop on May 19, 20…tag:www.thebullbear.com,2011-08-30:3301355:Comment:522272011-08-30T13:29:54.143ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
The sudden drop on May 19, 2011 caused Mr. DiLiddo's positions to stopped out at the open at an 16% loss on that day. But the short term bottom call was not wrong as the low on August 9 was not revisited. A simple reliance of indicators without understanding of Elliot Wave seem to be be inadequate as indicators do not offer sufficent indication of the level of risk.
The sudden drop on May 19, 2011 caused Mr. DiLiddo's positions to stopped out at the open at an 16% loss on that day. But the short term bottom call was not wrong as the low on August 9 was not revisited. A simple reliance of indicators without understanding of Elliot Wave seem to be be inadequate as indicators do not offer sufficent indication of the level of risk. MORRISTOWN, N.J. (MarketWatch…tag:www.thebullbear.com,2011-08-30:3301355:Comment:527142011-08-30T13:19:01.470ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
<p class="leadin">MORRISTOWN, N.J. (MarketWatch) — After Federal Reserve Chairman Ben Bernanke’s speech last Friday, the market sold off rather sharply. But once that selling got out of the way, a strong bullish move took place, carrying the Standard & Poor’s 500 Index higher by more than 70 points in just over one full trading day.</p>
<p>The reversal in price is accompanied by positive reversals in many technical indicators as well. We therefore expect higher prices over the next couple…</p>
<p class="leadin">MORRISTOWN, N.J. (MarketWatch) — After Federal Reserve Chairman Ben Bernanke’s speech last Friday, the market sold off rather sharply. But once that selling got out of the way, a strong bullish move took place, carrying the Standard & Poor’s 500 Index higher by more than 70 points in just over one full trading day.</p>
<p>The reversal in price is accompanied by positive reversals in many technical indicators as well. We therefore expect higher prices over the next couple of weeks, although it is likely that there will be a very short-term correction before the next advancing stage.</p>
<div class="bgConga"><div class="threewide TopBorder addgutter addbottomgutter">However, perhaps the most important indicator — the chart of the S&P 500 <span class="quotePeekContainer"><span id="quote124732823" class="quotepeekbase bgQuote up"><a href="http://www.marketwatch.com/investing/index/SPX?link=MW_story_quote"><span class="bgChannel">/quotes/zigman/3870025</span> <span class="symbol">SPX</span> <span class="data bgPercentChange symbol">+2.83%</span></a></span></span> itself — is still in a bearish mode. However, we think that can be overcome, at least for a while. Thursday and Friday, the market advances were repelled when they reached the still-declining 20-day moving average of the S&P. Today, the index was able to punch through that moving average. In fact, it climbed into the resistance area at 1,200-1,210. Two weeks ago, SPX topped out there and fell back sharply. This time, however, it seems that it should be able to break through.</div>
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<p>There is support on the SPX chart at 1,160, and below that at 1,120 — where the S&P either closed or had an intraday low (or both) on six separate occasions since Aug. 8. Later, if that level should be broken, it would be very bearish, but for now the momentum is upward, not downward.</p>
<p>The equity-only put-call ratios have been rising steadily for nearly a month now, and as such they are in a very oversold state. Buy signals are just now being confirmed for these ratios, and — given their seriously oversold condition — these buy signals have the potential to be strong ones.</p>
<div style="width: 460px;" class="imageSmall"><div style="text-align: right;"><img width="460" src="http://ei.marketwatch.com/Multimedia/2011/08/29/Photos/McMillan/pc21%20(2).JPG?uuid=2c14b54e-d27f-11e0-947a-00212803fad6" height="345"/></div>
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<p>The total put-call ratio is nearing a buy signal as well. It is rare that this indicator, for it has only given 13 buy signals in the last eleven years. But it is definitely going to give a buy signal soon — it is merely a matter of when. At this point, it appears that it will give a buy signal later this week.</p>
<p>Finally, the Chicago Board Options Exchange’s equity-only put-call ratio gave a buy signal a week ago, on Friday Aug. 19. The difference between the equity-only ratio shown in the above chart and the CBOE’s equity-only ratio, is that the data in the chart is comprised of data from all option exchanges, not just the CBOE. However, we monitor both, and the CBOE has a track record of short-term signals. In this particular case, SPX was up nearly 40 points within two days after the Aug. 19 buy signal, thereby fulfilling the projections of that short-term signal.</p>
<div class="pvideo"><div class="pvideoContent"><a href="http://www.marketwatch.com/story/more-buy-signals-in-place-2011-08-30?dist=beforebell#" id="video_332E0DEE-3F77-4F30-9C50-A6D12C0C9798" class="pvideoLink" name="video_332E0DEE-3F77-4F30-9C50-A6D12C0C9798"><span class="playbutton">Click to Play</span> <img width="287" src="http://m.wsj.net/video/20110829/082911hubpmmarkets/082911hubpmmarkets_512x288.jpg" height="162"/><img/></a> </div>
<h3>Dow surges 254, nearing break-even point for the year</h3>
<p>Stocks rallied in some of the thinnest trading of the summer, highlighted by gains for insurers amid relief over Hurricane Irene's relatively light touch on major cities.</p>
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<p>Market breadth has been very positive since SPX turned upward on Friday — perhaps too positive. Both Friday and Monday were “90% up days.” That means that advancing issues outnumbered declining issues by at least a 9-to-1 margin and advancing volume outnumbered declining volume by at least that same 9-to-1 margin. While it is positive that a large number of stocks are participating in the rally over the past two days, this is telling us that it’s too much and too fast. We would expect a sharp market correction, lasting just a day, sometime in the next two days.</p>
<p>The volatility indexes <span class="quotePeekContainer"><span id="quote1085120985" class="quotepeekbase bgQuote down"><a href="http://www.marketwatch.com/investing/index/VIX?link=MW_story_quote"><span class="bgChannel">/quotes/zigman/2766221</span> <span class="symbol">VIX</span> <span class="data bgPercentChange symbol">-9.30%</span></a></span></span> <span class="quotePeekContainer"><span id="quote677259603" class="quotepeekbase bgQuote down"><a href="http://www.marketwatch.com/investing/index/VXO?countrycode=XX&link=MW_story_quote"><span class="bgChannel">/quotes/zigman/2754753</span> <span class="symbol">XX:VXO</span> <span class="data bgPercentChange symbol">-13.27%</span></a></span></span> have given a couple of spike peak buy signals in the past week. On Friday alone, VIX traded up to nearly 44, but then reversed sharply downward, trading at 34 before the day ended. Today, it continued to decline, but it was more subdued — losing just over 3 points on a day when SPX was up over 33 points. Hence, traders are not exactly “saying” that volatility is dead. In fact, as long as VIX is above 31 (its mid-August low), there is still the possibility of another high-volatility move.</p>
<div style="width: 460px;" class="imageSmall"><div style="text-align: right;"><img width="460" src="http://ei.marketwatch.com/Multimedia/2011/08/29/Photos/McMillan/vix.JPG?uuid=4adcb3c8-d27f-11e0-947a-00212803fad6" height="345"/></div>
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<p>The term structure of the VIX futures continues to slope modestly downward. That is a bearish construct. While the term structure is much flatter than it was a week or two ago, it has still not turned bullish yet — not until the longer-dated VIX futures begin to trade at higher prices than the shorter-dated ones.</p>
<h3>Another historical comparison – 2007</h3>
<p>In our last market comment, published two weeks ago, we postulated that this current period might be like 1998. (See: <a href="http://www.marketwatch.com/story/markets-rally-from-oversold-levels-may-not-stick-2011-08-17"><font color="#004176">Market’s rally from oversold levels may not stick</font></a> ) That year, there was a large decline in August, a rally into late September, and then a very sharp and volatile decline to new lows by early October. At that point, the market bottomed, and an uptrend resumed.</p>
<p>Another year that has similar characteristics is 2007. The market was rallying for most of the year, blissfully unaware of the financial crisis that loomed ahead. Eventually, though, the fatal phrase “subprime debt” came to light in July of 2007. The S&P 500 fell 160 points from mid-July into August. Then the market rallied to new all-time highs in September, eventually peaking in early October. I do not expect the current market to make new yearly highs on this current rally.</p>
<p>Finally, the S&P topped out in early October, trading down 150 points by Thanksgiving. Of course, this was the beginning of a much longer bear market, but the action in July through October is what I want you to concentrate on. Both in 2007 and 1998, an August decline led to a September rally, but was then followed by another sharp, volatile market decline that made new closing lows.</p>
<p>In summary, the current rally that began last Friday can carry towards resistance at SPX 1,260. Since the market remains volatile, perhaps it can carry even a bit further. But we expect to see another market decline in the traditionally bearish September-October time period.</p>
<p><span class="emphasis"><em>Lawrence G. McMillan is president of McMillan Analysis Corp. He is an experienced trader and money manager and is the author of the best-selling book,</em></span> <a href="http://www.optionstrategist.com/products/options-strategic-investment-4th-edition"><font color="#004176">“Options as a Strategic Investment”</font></a> <span class="emphasis"><em>and editor of the</em></span> <a href="http://store.marketwatch.com/webapp/wcs/stores/servlet/PremiumNewsletters_MarketWatch"><font color="#004176">“MarketWatch Options Trader”</font></a> <span class="emphasis"><em>newsletter. </em></span></p> Correction. I misread the cha…tag:www.thebullbear.com,2011-08-19:3301355:Comment:511172011-08-19T15:57:53.707ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
Correction. I misread the chart. It is VIXY matching exactly to VXX.
Correction. I misread the chart. It is VIXY matching exactly to VXX. Unlike VXX, VIXY matches $VIX…tag:www.thebullbear.com,2011-08-19:3301355:Comment:510172011-08-19T15:14:25.409ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
Unlike VXX, VIXY matches $VIX perfectly.
Unlike VXX, VIXY matches $VIX perfectly. Excerpts from: http://seeking…tag:www.thebullbear.com,2011-08-18:3301355:Comment:509082011-08-18T01:12:52.702ZJ CHANhttps://www.thebullbear.com/profile/JOHNCHAN
<p>Excerpts from: <a href="http://seekingalpha.com/article/222549-vix-vs-vxx-correlation" rel="nofollow">http://seekingalpha.com/article/222549-vix-vs-vxx-correlation</a>:</p>
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<p>" Further analysis suggests that historically VXX captures about 50% of the daily move in the VIX (although YTD=85%, most likely due to record high implied correlations), largely explained by mean reversion. Theoretically, the VIX index should outperform during a rally because traders will NOT anticipate the…</p>
<p>Excerpts from: <a rel="nofollow" href="http://seekingalpha.com/article/222549-vix-vs-vxx-correlation">http://seekingalpha.com/article/222549-vix-vs-vxx-correlation</a>:</p>
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<p>" Further analysis suggests that historically VXX captures about 50% of the daily move in the VIX (although YTD=85%, most likely due to record high implied correlations), largely explained by mean reversion. Theoretically, the VIX index should outperform during a rally because traders will NOT anticipate the VIX to be higher in 30 days. Therefore, the VXX would underperform and get crushed. The opposite would be true in bear markets.</p>
<p>In summary, to say that VXX is a terrible ETN would be inaccurate, there is no mispricing between the two entities. VXX will perform worse than the VIX under the conditions that the market anticipates lower volatility in the future. Unless you are a futures trader, the best way to hedge may simply be buying <a rel="nofollow" href="http://seekingalpha.com/symbol/spy" title="SPDR S&P 500 Trust ETF"><font color="#024999">SPY</font></a> puts or put spreads. Looking at the metric from a total return basis, we can see the lack of support."</p>
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<p><a target="_self" href="http://storage.ning.com/topology/rest/1.0/file/get/54230766?profile=original"><img width="721" src="http://storage.ning.com/topology/rest/1.0/file/get/54230766?profile=RESIZE_1024x1024" class="align-full"/></a></p>
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<p>VXX has outperformed ^VIX since 8/9/11 as it anticipate higher volatility in the future and may be a good vehicle to participate in a bear move in a bear market at the right timing. The $VIX:VXX Ratio also gives a good indication whether the sentimental stauts of the market as being bull or bear. Ratio > 1 favor bear and ratio < 1 favor the bull.</p>
<p>Today ^VIX is down and VXX is up. Traders are anticipated volatility will soon return. ??</p>
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