Mixed Signal from the Market
Friday, October 17th, 2008

The broad markets remain very volatile at best. The VIX spiked to 80 yesterday and sent more investors heading for the exits. However, those who hung around were rewarded with a bounce off a test of the previous lows. The swing of nearly 900 points on the Dow is why the VIX is at such unprecedented level along with investors blood pressure.

Economic data is still depressing on the manufacturing side with the Philly Fed posting a -37.50 reading in October versus the 3.5 in September. CPI, however showed inflation dropping to stir something positive. 0.1% increase on the core and flat overall . We will keep our fingers crossed on that one. The increased money in the float can be inflationary, but so far so good. The retail sales are in the crapper and that doesn’t help heading into the peak holiday season. Housing remains weak, but what’s new. Overall still no real measure of how the economy will pan out from this latest go around with the credit crisis.

Libor, TED spread and commercial paper are still the challenge for the markets short term. Rates are adjusting down, but not as quickly as some anticipated and that is impacting the market psyche. Just look at the 1-month T-bills are yielding 0.4%. Money flow is still somewhat clogged, but getting better one day at a time.

The sentiment is still on the negative side as seen in the investment advisor sentiment reading. The bulls are at 22.4% versus a reading of 40.7% in July. The bears climbed to 52.9% that is the highest since 1995. This is a indication of the negative tone to the overall market currently. It could also be the turning point for the markets. Worth watching to see how it plays from here.

Today let’s look at the chart of NASDAQ

The broad index is an indication of the current volatility in the markets. Let’s look at some of the key points here that could lend some credence to a play on the index. First we held support at the intraday low of 1542. The bounce was positive and on solid volume. We cleared 1689 on the close. If we can move above the 1757 today and on good volume this could be a short term opportunity with a target of 1896. The resistance at that point will be to fill the gap. The 20 day moving average will come into play as well which corresponds to the top of the gap. I like the set up for a short term low and bounce. If we get through the gap the next resistance comes into play at 2152.



I have also attached here a chart of QQQQ (NASDAQ 100). The chart is similar except the gap is less prominent. This is one way to play the move on the index if it develops. The key is to have a discipline strategy in approaching a short term or long term play on the index. For more updates or track this daily, log onto the ETFs to Watch page of SectorExchange.com.