8th Bear Market Rally Since October 2007
Merrill Lynch’s David Rosenberg notes that last week’s pop was the eighth bear market rally since October 2007.
As the chart below shows, they have ranged in strength from ~8% to over 24%.
Each one was treated (”enthusiastically”) as if a bottom had been made. Each one saw a subsequent lower low, excepting the most recent one that ended Friday.
Revisiting the Wyckoff Spring
For you students of technical analysis arcana: This past week's action is what could be described as a Wyckoff Spring.
Who is Wyckoff, and what is is his spring? Richard Wyckoff was a trader from the 1920s. He penned several of my favorite Market books (mentioned previously here), before setting up the "Stock Market Institute" in Phoenix to study technicals and markets.
A Wyckoff Spring occurs when a market average (or stock) falls below its trading range, and makes a new "panic low" -- and then "springs" back into its previous range.Its a relatively rare situation, one that is usaully associated with a sell off. That is a rather apt description of the entire week's action.
Does the 1970’s Dow 1000 = 2000’s SPX 1000 ?
With 15 minutes left in today's trading, let's take a quick technical look at the past month's market action:
SPX 30 Days
My perspective: This 2 day pullback after the sharp 20% rally from the October 10th lows in the SPX is about a ~50% retracement of the inital rally, as well as the Electin Day revisit to those highs.
It appears that forays above the level 1,000 have twice brought out the sellers.
I wonder if SPX 1,000 will become the modern equivalent of the 1970s Dow 1,000 . . .
VIX Slips Below 50
Who could have predicted that traders would be celebrating the decline of the Chicago Board Options Exchange’s volatility index below the 50 mark?
We saw the VIX peak late October, coincident with the worst of the credit freeze and market panic. The VIX closed yesterday at 47.76, down 11%, for the first close below 50 after an incredible run of 21 consecutive days above 50.
The VIX peaked late October, coincident with the worst of the credit freeze and market panic.
Volatility has begun to diminish as investors reduce their worry about the state of the markets, even as the outlook for the economy worsens.
One thing we learned: The prior measure for volatility "highs" around 30 are not reliable entry points for bad dislocations. They have in the past signaled sufficient panic that you could buy in, but that is a level that traders may no longer find much faith in.
Peter Boockvaar reminds us that the VIX has closed above 30 for 37 consecutive days, and may still surpass the period in 1998 during the Long-Term Capital Management debacle where it was above that mark for 50 days.
The current worldwide liquidity crisis may yet take a long time to stabilize . . . and I would expect the VIX to also take an equal amount of time to find a more moderate level.
Fear Returns to the Markets (September 18, 2008)
Chart of the Day: VIX versus SPX (June 23, 2008)
10 Year VIX versus SPX (June 24th, 2008)
Did October 2008 Panic Exceed the 1987 VIX Levels ?
In all of the end of month mayhem last week, you may have missed the above Bloomberg chart-of-the-day on Friday. It showed something that was rather fascinating: Option traders have been at a more elevated level of fear for a longer period of time than during the 1987 crash.
The comparison is one between short and sharp (1987) versus high and protracted (2008). Its between a brief peak and a prolonged elevation.
Here's the Ubiq-cerpt:™
"U.S. stock investors have been more fearful for longer than they were in the weeks before the October 1987 market crash, according to a gauge known as the old VIX.
The CHART OF THE DAY shows the closing values for this indicator, the Chicago Board Options Exchange S&P 100 Volatility Index, in the past two months (the white line) and the same period 21 years ago (the red line).
This year, the old VIX climbed from the start of September through Oct. 11, when it surpassed 100 in intraday trading for the first time since the month of the crash. Back in 1987, the index stayed below 30 until the Friday before stocks tumbled.
The indicator is derived from prices of options on the S&P 100, as its name suggests. The current version, introduced five years ago, uses S&P 500 options and includes more contracts in the calculations. Their readings tend to be similar. The VIX closed yesterday at 62.90."
Good stuff . . .
'Old VIX' Shows More Sustained Fear Than in 1987: Chart of Day
Bloomberg, October 31 2008
"How far back" are we?
This chart is from Dr. Artur Adib, a physicist interested in finance.
He wanted to attempt to see how bad things are in the stock market, so he generated the chart below. It compares current pricews (top) with the Dow price in terms of the number of years since the first occurrence of that price (bottom, red)
I liked the way this puts the current historical price chart into a somewhat different perspective.
Dow Prices, Relative Previous Price
chart via Dr. Artur Adib
Crude Oil = $61
We were talking about deflation when Crude Oil hit $75 -- 2 weeks ago; This morning, we hit $61 and change:
Crude Oil via Barcharts
Chart Porn of the Day: It’s the Economy, Stupid!
It’s the Economy, Stupid!*
Good, October 16, 2008 at 2:10 pm
Sentiment Update: Go Blue !
How is sentiment lately? It is insanely negative. I am going to give you three different factors -- anecdotal, data driven, and media.
1) For most of the past 2 years, I have invariably been the most bearish guy in the room. This has been true whether I was at a meeting or conference, on TV, in print, or simply out having dinner. The lone exception were anytime Nouriel Roubini was also present. Then I would be the 2nd most bearish person in the room.
Lately, I am the most bullish guy in the room -- and I have to tell you, that is just plum weird to me. This week, there were 4 separate occasions when I was in meetings, on TV, at a lunch, at a private dinner. Its very odd.
2) The October University of Michigan Confidence number is just shy of the lowest level since 1980. University of Michigan Consumer Confidence level is at levels not seen since the end of the 1970's bear market. (Hence, my "Blue" double entendre). The telephone survey is compiled last week and as late as yesterday. It certainly reflects much of the market action over the past 2 weeks.
That's right, we are as negative as anytime we have been over the entire course of the 1982-2000 Bull, or the start of the 2000-03 bear. Worse than the 1990 recesson, worse than LTCM or the Thai Baht crisis, worse than the tech and dot com crash, worse than 9/11.
That is some seriously bearish sentiment:
U. of Mich. Survey similar reading to 1970's Bear Market low level
chart courtesy of FusionIQ
I keep hearing people say (anecdotally) there isn't enough Bearish sentiment, but with equities nearly cut in half, and near 30 year lows at UoM Sentiment, this is just about as bearish as it gets. And that's bullish for equities.
3) On a media note, beyond the Soup lines on the cover of Time magazine, this weekend I have to Tivo "Fall of the Fat Cats" on CNN.
Programs of that sort are more anecdotal support for excessive Bearishness . . .