Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Conditions Ripe For Huge Stock Market Rally

Stock-Markets / Global Stock Markets Sep 19, 2008 - 06:06 AM GMT

By: Chris_Ciovacco

Stock-Markets

Diamond Rated - Best Financial Markets Analysis Article"The great secret of success in life is for a man to be ready when his opportunity comes." Benjamin Disraeli

In a difficult time for investors, it is refreshing to report a ray of hope in the charts below. In addition to the positive technical developments, two fundamental developments may help the market find an intermediate bottom:


  • The Fed injected massive amounts of cash into the banking system in an effort to get banks lending to each other again.
  • Senator Charles Schumer proposed a new agency to pump capital into financial companies.
As mentioned in a September 17th article , both the VIX and the NYSE New Highs - New Lows indicators have been signaling a possible intermediate bottom in stocks. Here is some text from the September 17th article: "The two charts below say we may be approaching an intermediate bottom. The chart of the Volatility Index (a.k.a the VIX) is a way to measure market participants' fear of potential losses. Markets tend to make bottoms or reverse trend when fear levels are high. Conversely, markets tend to top or peak when people are confident more gains lie ahead. The green circles show the last three market tops in 2008 (a low reading on the VIX). The pink circles show the bottoms made in 2008 (a high reading on the VIX). The dark green box shows the VIX as of Tuesday's close [now Thurday's]. A VIX reading in the mid 30s is more indicative of an intermediate (temporary) bottom rather than a bottom which would put an end to a bear market."


The charts below have been updated as of the market's close on Thursday, September 18, 2008.

The VIX - Options Gauge Fear

Again, from the September 17th article:

"The VIX peaked in the mid 40s in 2002, so there is room for significantly more downside in stocks. Yesterday's high on the VIX was roughly 34...However, a reading of 34 on the VIX can signal we may be approaching a multi-week rally in stocks."

A VIX Reading of 42 is Rare and Positive For Stocks

Thursday's intraday high on the VIX was 42.16, which shows a rare and high level of fear. Since we are in a bear market, comparisons to high VIX readings in the 2000-2002 bear market are helpful. There were two times in the 2000-2002 bear market where the VIX closed above 42 and stocks reversed course soon thereafter; on September 21, 2001 and July 24, 2002. From September 21, 2000 to January 3, 2002 (after the VIX went over 42), stocks staged a 24.5% bear market rally from the lows. After a reading of 42 on the VIX was made on July 24, 2002, stocks again gained 24.5% before reversing on August 22, 2002. A reading of 42 is rare on the VIX. The fact that we hit 42 yesterday means the odds favor some stock gains in the coming weeks. Please note we are talking odds and probabilities, which mean the outcome could be positive or negative. The odds point toward positive outcomes, which means the grave threat of losses may have lessened at least for a time.

From the September 17th article:

"When a significant number of stocks are making new highs on an exchange, it is bullish. When there are significantly more stocks making new lows then new highs it is indicative of a weak market. When the number of new lows versus new highs gets to more extreme levels, it can signal selling exhaustion or investors "throwing in the towel". The chart below shows the number of new highs minus the number of new lows made on the NYSE. Market tops made in 2008 are shown in the red boxes. Market bottoms made in 2008 are shown in the blue boxes. The reading as of Tuesday's close is shown in the dark green box. During the last bear market, the lowest reading was -907, which occurred on July 24, 2002. After the reading of -907, stocks staged a powerful bear market rally gaining 24% from the July 24, 2002 lows. The 2002 rally lasted four weeks. Tuesday's reading was a -1,014 indicating a strong desire to sell stocks."

The chart below has been updated as of the market's close on Thursday, September 18, 2008.

S&P New Highs - New Lows

From the September 17th article - these comments still apply:

"These indicators should not be used in isolation. The VIX could move higher and the NYSE New Highs - New Lows could move lower. However, the indicators and the government's announcement concerning AIG should not be ignored. The best chance for a somewhat permanent bottom in stocks would be for it to occur after another round of strong selling. If new developments support some type of bottom, then defensive positions would become less attractive and growth investments would become more attractive... These indicators do not necessarily point to "the bottom", but they do point toward a possible change in the intermediate trend occurring relatively soon. Any negative news could trigger more declines in a fragile market."

Some Conservative Exposure To Stocks May Be In Order

Since the odds of immediate further declines have decreased, it may be prudent to exit defensive/bear market positions. Since risks remain at elevated levels and the economy still faces serious obstacles on the housing, banking, and employment fronts, any stock rally should be met with a prudent dose of skepticism. The text below from the September 17th article, aligns well with what happened on Thursday, September 18, 2008:

"If the markets rally on Wednesday (or in the coming days), it will be important to see how they act in the last hour of trading. A strong finish Wednesday would be a good sign. A weak finish may indicate the market feels more problems lie ahead, which is most likely the case." On Thursday we did get a rally after stocks came off significant intraday lows. More importantly, volume was strong and the last hour of trading saw a mad rush to buy.

Thursday's reversal and strong finish coupled with the charts above make a reasonable case for the possibility of an intermediate rally in stocks that could last more than a few days (even several weeks). The Fed's massive injection of cash into the banking system and talk of more government intervention may also help fuel what would appear to be an unexpected rally. During bear markets, stocks often rally when people are pessimistic and things look bleak. Some very moderate exposure to stocks with a skeptical and watchful eye may allow us to profit from the possible rally. For most investors, the vast majority of their investment capital should remain insulated from risk.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2008 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

Chris Ciovacco Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

mario romano
08 Oct 08, 19:37
stock market rally

what kind of a rally has this been since you predicted it in September..the vix is over 55 and most investors have seen a 30 to 40 % drop in days!Are we still due for the so called year end rally .or is it different this time...6


Post Comment

Only logged in users are allowed to post comments. Register/ Log in