Saturday, May 2, 2009

Market Timing Commentary as of Friday, May 1st, 2009

Market Timing Commentary as of Friday, May 1st, 2009SocialTwist Tell-a-Friend
Fari Hamzei

As we mentioned on Twitter Saturday morning, we observed that market Vols are continuing to collapse [in a ~ 5.5-week cycle]. To see this from a better perspective, this week for the first time, we have included a second "Sigma of the Vols" chart. This second chart is Weekly. It allows us to step back and see a better picture. Even though to a naked eye, it looks as if the Vols have receded quite a bed (vs. last Fall high readings), both in absolute and relative values, the true short/term undercurrents are not so clear. This week we plan to data-mine our real/time datafeed for more unusual block-trade activity and it should be a good tell. More on that issue next week in our Saturday webinar. Suffice to say, that we are reading a few NYSE large liquidity providers may have had a lot to do with this.

In any event, our first target south for the Vols shall be -2 sigma on the Weekly chart. That puts the VXO/VXN/VIX Complex at approximately a 30 marker.

As we discussed last Sunday on this Blog, this week, as expected, NASDAQ-100 (NDX) tested its 200-day Moving Average (white curve in the right hand graph in the Timer Chart below) and the 1400 psychological level. The Timer Chart also shows that the McClellan Oscillators for NYSE and NAZZ eased off by Friday May 1st Close with readings of +133 and +67 (down from +167 and 86), respectively.

What is more important is that the Bearish Divergences we continue to see develop further in Prices vs McClellan Oscillators. Somewhere in here, somehow, a catalyst will force the Prices to give in. Again, brace yourself with a of tad of O-T-M ETF Puts as a low cost insurance here for your portfolio.

As the next chart, (our WEEKLY Wyckoff) shows, the volume was lower this week than last on higher index prices. Again this is not good.

Next notice DJ Transportation Index (lower left subgraph) is flat (and parallel with its 20-week Mov Avg -- thin yellow line) here. This Index normally telegraphs market expectation of general economy as a whole 6 to 9 month hence. It is FLAT here.

The lower right subgraph, the Russell 2000 (RUT), our favorite Small Caps Index, which gives us a sense of relative risk-taking by market participants in aggregate form, has a more gradual upward sloping graph and a lower Sigma Level compared to NASDAQ-100 (NDX), right above it. Market participants are piling into big caps to seek refuge from the market risk of small caps.

THIS IS NOT GOOD AT ALL for the LONG side of the Market.

Bottom Line: We should see some indices' price retracements soon. Maybe the catalyst will be the Money Center Banks Stress Tests Results, to be released a few trading hours before the April Non-Farm-Payroll, that which is slated for release on Friday May 8th at 0830 EDT.

Trade Well This Week.....

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