Tag Archives: RSX

Bounce or crash, that’s the question.

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Here’s the latest chart of the 5-day average equity put:call ratio. Option markets have done a lot to correct the historic extreme in complacency that we saw in April.

Indexindicators.com

Stocks are still only moderately oversold on a daily scale. RSI has made a sort of double dip into oversold territory, and MACD has also turned down to almost reach a downsloping support line formed by declines over the last 12 months. At some point this year all support should be smashed, but it would be rare to crash right from the very top. A relief rally would clear things up a lot and offer a great chance to get short.

Stockcharts.com

In contrast to the US markets, look at the extreme oversold condition in several major global stock indexes.

6-month Nikkei chart:

Bloomberg

The Eurostoxx 50 index:

Bloomberg

And here’s a 2-year view of a bunch of emerging markets ETFs. These I suppose could keep rolling over into a waterfall, but I’m not sure we’re at that stage yet.

Yahoo! Finance

Cleared to fall

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A lot of markets have had more than sufficient clearing rallies, and their charts would exhibit a nice proportionality if they were to top right around these levels. I think it’s likely that they meander or float a little higher for the next 2-5 days, but they could just as easily reverse hard at any moment.

The Australian dollar looks like a lot of these charts right now:

Prophet.net

The same wobbly pattern of rolling over can be seen here, in this Russian market ETF:

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The charts of the Canadian and New Zealand dollars, oil, copper and platinum are also remarkably similar to these above.

In the major US indexes like the Dow, seen below, the initial crack from the highs was much more violent, so the same impulses have not brought prices near to the old levels. This is similar to when the post-crash rally was broken in 1930 (2nd chart below).

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The Euro had a decent rally early in the week, but like the British pound after its June highs, its spirit is looking broken and it has fallen out of pace with the pack:

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Of course, if the current urge to speculate persists, I think a short-squeeze in the euro is still very possible.

One last chart here, the VIX (90-day view), which really shows the ebb and flow of fear and greed. Wouldn’t it be pretty if it bottomed right here?

Some sector winners and losers so far

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The winners are those groups that have fallen the least since mid-January, somewhat adjusted for their potential to decline. I view these as the least prone to violent snap-back rally right now, so this is where I am adding, conservatively, to my short portfolio:

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Losers

Materials are among the big losers so far. Commodities have a tendency to fall hard right from the peak and keep crashing for months. I’d like to short here, but will wait for a better entry (which may never come).

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It is also worth noting that among the world’s stock markets, the US has held up pretty well so far, along with Japan, and believe it or not, Russia. The worst markets, besides Greece (which has already given up the majority of its 2009 gains) are the “emerging markets.”

Key to chart below:

Green: Japan; Purple: Russia; Dark blue: S&P500; Orange: India; Light Green: various emerging markets; Light blue: Europe; Brown: Brazil; Red: China (Shanghai-listed stocks)

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I suspect I’m going to be shorting Russia soon. It was among the very worst in 2008.