You've Lost that Lovin' Feelin' - Morning Market SnapShot for Friday, September 17, 1999
Over the past few weeks, commentators in the financial media have continually harped on the lack of volume in the market across the board while nervously waiting for the release of one economic statistic after the next. It seems that market participants are all uneasy, unable to explain that terrible feeling in the viscera. It seems as if they can sense that others wish to sell, but no one is doing so because of the fear of being wrong and missing a move up. What they are all looking for are reasons and excuses in the form of bad news while playing a staring game to see who blinks first. In this environment, traders will likely move in the same direction all at once when the market makes that decisive break.
The daily chart of the S&P 500 index contains two main formations. One is a large head and shoulders pattern that began forming in April with a neckline at 1280. The other is a triangle that has been evident since the July highs. In a triangle where there is trading range contraction, it is no surprise to see trading volume decreasing over time, as it is a hallmark of such patterns. At the apex of the triangle, volume will go in the direction of the eventual breakout. Triangles are also prone to fake outs, and we will be watching for that too. Yesterday marked a break to the downside to make a new 20-day low. If this low cannot hold, then the next target is the August 10 low of 1267 on the cash index. Below 1267 is air.
A quick look at market internals finds 52-week NYSE new lows at 219, outnumber new highs by 12 to 1. In this environment, if a bottom cannot be found right here, we will expect panic selling on a decisive break of 1267. The CBOE market volatility index, VIX, made a new 20-day high yesterday, and closed above the Bollinger Band. The band narrowed over the past two months as the market consolidated. While it is normal to think that it will move back into the band, a sudden move to the upside could also be indicative of a new uptrend in the VIX, which would be propelled by fear in the market.
Last, but not least, is an updated chart comparing the December S&P futures contract to that of another time. We shall leave the interpretation of this chart to our readers.
Charts specific to these comments have been posted to
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