with its current level in the low 40s, the CBOE Volatility index signaled enough fear in the market to call at least a temporary bottom. Additionally, Friday bullish turnaround suggested strongly that an important near-term low has been established around the 1050 area in the S&P 500 index. This is positive from a technical standpoint, but the benchmark index still has some work to do in order to break above its two-month downward trend.
although seemingly vulnerable to further short-term weakness, the bulls shouldn’t get into any serious trouble as long as the S&P 500 index holds above the February low of 1044. With that said, until the psychological barrier at S&P 1044 falls out, it’s possible that the market is now trapped within the 1170-1050 trading ranges on the S&P 500 index. It could take more than a couple of weeks, if not months, for the market to trade outside of the ranges. So it wouldn’t surprise us to see more backing and filling in the coming days.
current trading environment is terrible from the perspective of volatility. Given that high volatility indicates that investors are more risk averse, lower stocks prices should be expected if the VIX is going to stay elevated. Although considering the magnitude of Thursday’s selloff, we’re not expecting much more downside without at least some consolidation first.
CEM News - Market Outlook (the technical analysis of financial markets) for May 7, 2010: “…Looking at the 3-year daily chart of VIX, we can see that Thursday’s massive selloff had caused volatility to spike above the top of its short-term trading range and also above the panic threshold. This is negative from a technical standpoint because it signals a start of a new down wave in stocks. In fact, as indicated in the above chart, current trading pattern in the VIX is very similar to that of the 2008 stock market crash. Right now the most important thing to look for is…” Subscribers, please login to read the rest.
Tuesday massive decline could be a beginning of the long overdue correction, which would eventually take the S&P back to key support at the area of the January high of 1150.
