Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Thursday, August 19, 2010

The stakes are getting high

Click on images above to enlarge

Today the market sold down on big volume right from the open. The unemployment new filing numbers were bad and the Philadelphia Fed  economic numbers were a disaster. The economy is giving warning signs nearly every day of where it is going.  Any investor not paying close attention on a daily basis would never dream how serious of a situation were are in now.

Looking at the top chart cluster, in row 2 we see that the VIX/fear index broke out of the downhill brown and the blue channel for a medium size VIX sell signal. The Bond market broke out of its channel to the topside, another medium sell signal.  Today may be the day that everyone will look back upon later and say was the first day of the great Bond market bubble of 2010-2011.  The bond market dwarfs the stock market several times over.  No one wants to even speculate the events that would unfold if the bond market bubbles up and then pops like the internet stock bubble of 1999-2000. Yet we are still seeing masses of investors bail out of the stock markeet and flee to the bond market. Considering how high the bond market is already, this migration of investment money will be all it takes so start pumping up a bond bubble.  All bubbles begin with a topside breakout of an already steeply inclined channel. Such as we did today.

Looking at the lower chart cluster, In chart 1 of row 1,  I added in the 324 ema as the orange/rose line. It is completely covering up the pink 50 line.  We now have the rare situation where the 108 ma (chart 3 of row 1) and the green 10 ma line (back in chart 1 row 1) are pressuring the red 5 ma line to cross down through both the pink 50 and the orange 324 - at the same time.  I scrolled back 18 years in the S&P daily chart( allow one hour for doing that, LOL)  and I found that this type of a pressured pivot point has not occured before.  This is a very high pressure and very volatile set up.  If the 5 cannot withstand  the pressure and crosses down thru both critical ma lines, it will also fall from the brown uphill mother channel shown in chart3 row1 - at the same time also.  This could send us spiraling down to the early July lows. 
If they drive the market up like a rocket tomorrow they could potentially twist the 5 ema enough to morph the 5-50 into a bounce rather than a down cross. They certainly have the motivation with the huge PUT inbalance, but it would truly have to rocket up.
In row 2 we see that the S&P stopped it's fall this morning with the lower line of the new downhill brown channel.  In row 3 we see that went down deep into over sold territory today also.
Another market rescue is absolutely necessary again tomorrow.  If they drop the ball tomorrow or if the exodus to the bond market is just too overwhelming for them, a lot of stock investors may be really wishing that they too had switched to bonds.


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