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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Square_Dealings who wrote (32468)	10/11/2000 6:12:34 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 42787

Mike, Describes the recent action of the VIX as similar to the pattern at the start of the '98 decline. Actually, I don't find it to be all that similar. VIX went from a low of about 17, to almost 35 in 13 trading days in 1998. Then it pulled back some before going to the high of 53. That total 36 point move from low to high VIX took 32 days. VIX has now moved only 15 points from a low of about 18 to today's high of about 33 in 32 days. Can it keep going? Of course it can, and yes it might accelerate, but the pattern is also similar to a number of other downtrends that did not end in such dramatic fashion as '98. Market bottoms are marked by a high level of fear and capitulation and even with the magnitude of the recent drop, the fear has not been there. This is simply not supported by the evidence. Market bottoms that occur in the face of fear and capitulation are market by sudden downswings and dramatic reversals accompanied by high VIX, but there are many market bottoms that are marked by less volatility that stand the test of time. Some of the more prominent ones: July 1996 bottomed with VIX never getting over 30; April 97 bottomed with VIX barely breaking 25. These annual panicky sell offs are a fairly recent phenomenon that have followed extended periods of market strength. We had one already in 2000, and it has not been followed by a period of market strength. It has been followed by a drifting market that has really gone nowhere since January. The market is in the hands of mutual fund holders (Joe 6 P)and foreign investors at this point. If they start to sell then the declines will accelerate. Yes it will. And I'm not saying it can't happen. I'm just saying that conditions are less favorable for it to happen now than they would be after an extended market rise. As for fear not being there, I disagree. Who do you know who is not afraid? Even the people who think the bottom is near are afraid that it isn't. I certainly am. Today's low, which may very well not be THE low of this downtrend, moved the current decline into the >10% category at 11.97%, making it the 7th largest SPX decline since VIX has been calculated. With VIX peaking at 32.64, it also happens to be the 7th highest VIX peak among the >10% declines, falling well inside the correlation envelope. Should the market bottom here, or with not much further decline, this would be a quite "normal" market event. Dan