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The markets sell off ... is this the end of the Bear Market Rally?
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Hardly ... But we're all watching closely to see what happens next.
What happened to the headlines over the weekend? The financials had nothing but good things to say last week and we could not get enough positive earnings numbers. This morning it was all doom and gloom about the stress tests in the banks. Maybe people are wondering what will happen after they announce a quarter when they don't get bailout money.
In all reality, I read mixed headlines last week ... today wasn't the first day I heard that the stress tests could effect the banks. Earnings from GE and others were better than expected but not fantastic. Last week's earnings were no better or worse. Why did the market sell off today and not last week? Who knows? You just have to be ready for it.
How could you be ready for a 4% down day? Maybe by taking some profits after you're up 25% in a month ... maybe that's one way.
But is it time to get short? Have we broken support? Let's take a look at the chart
See the slideshow to open the charts
There's an S&P chart as well as a chart of the Volatility index. On the S&P chart, there are warning signs but we are not in panic mode yet. There is an up channel which we are not near the bottom of just yet. Volume is not encouraging - the volume in down days has been higher than up days in the past week. TheMACD histogram is not very strong. Even after a 4% down day, the market is still technically overbought. You could spin that two ways - either this is a strong market which can take a punch and keep on rising or it's going to be look out below when thestochastics drop out of the overbought territory.
Volatility spiked today. So what? The VIX used to be a good indicator of tops and bottoms ... when the market was more fear driven the top and bottom of the VIX and stocks would coincide. Take a look at the last - perhaps ultimate - bottom in the market. The VIX hit its short term high a full five days before the market bottomed. Had this been a fear driven market, that bottoming process would have included a spike up to the 90 range like last November. Does this mean that volatility cannot go that high again? Not at all, but I'll wait and see what happens.
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