Saturday, April 26, 2008

VIX Index

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I have stated in my previous "DJI chart" post about the possibility of the short term correction which could be caused by the high volume during the index up move on April 18, 2008. It’s difficult to say that April 22, 2008 – one day decline could be considered as a correction. Overall I would say we saw flat with small rise market over the last week.

Analyzing 60-day chart I may say that the technical indicators look positive. Yet, we start to see some negative alerts. The first negative point is that Advance/decline issues and volume oscillators started to decline telling us that we could be in the stage when the market is oversold in short-term and we may see the correction down. Second negative point is that now, we have even bigger than the last week positive MVO. We may expect that high volume on April 18 and April 23-24, 2008 may reverse the stock market down into correction.

The positive is that we still see rising SBV, RSI and Stochastics. The biggest positive factor on my opinion is that the VIX (volatility index) is below 20 now. The last time we saw VIX below 20 on December 26, 2007. This is a good sign that the fear is down and we may face the continuation of the recovery.

I consider the VIX index as an indicator of the market stages. As a rule I use it to adjust the indicators I use in my technical analysis. I believe, that in order to achieve the better result and avoid big loses a trader has to define clearly the periods when his/her technical indicators works the best and isolate the periods when the indicators do not work. Without doubt the VIX helps me mathematically identify these periods.

In overall I am still on the side of the recovery. I still believe that the market is heavily oversold and we should see the S&P 500, NASDAQ 100 and DJI indexes higher. Yet, taking into account the high volume over the last 2 week, I consider that there is a high possibility of the correctional move down. Should we face it, most likely it will be the correction within the dominant recovery.

Sorry, no chart today.

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