Monday Market Movement, Or Lack Therof…

The VIX dropped 9% today.

The VIX finished the day at 53, down from 80 last Monday and really justified our concentration on stocks rather than long calls the past two weeks as the long options got crushed in the drop. Can we assume from the VIX that the market is now moving in the "right" direction as it heads higher or does the drop in volatility mean that option investors have given up on the idea of the market making a great recovery and see us drifting into a permanent lower range?

We did a little more bottom fishing in member chat today but still sat mainly on the fence and looked at a new DXD position into the rally, just in case the markets don't like the election although our last play of the day was YRCW along with my call that UYG was about to break out over $10.20 so I guess we ended a little bullish although certainly skeptical of another late day rally. At least oil had a poor finish, ending below $64 and that's what we need to get some real sector rotation going. Investors need to get a sense that oil under $70 is permanent, which will allow them to make long-term investments in companies that use oil and, of course, $70 oil is a daily infusion of capital to US consumers.

The week has seen a lot of improvement on the Big Chart since last Wednesday, taking back the 40% level in all but the NYSE and the SOX in the US and all but the CAC in Europe. The Nikkei finished Tuesday's session right at the 50% mark on a 6% gain so those EWJs from the morning post were a pretty good call and the BSE finished right at the 50% line as well but Shanghai went the wrong way, still below the 70% mark or, as I like to call it – 30% from zero:

		Week's	2007	%	50%	40%	50	25%
Index	Current	Move	High	Loss	Down	Down	DMA	Down
Dow	9,313	248	14,021	34%	7,011	8,413	10,226	10,516
Transports	1,922	215	3,114	38%	1,557	1,868	2,061	2,336
S&P	966	26	1,576	39%	788	946	1,104	1,182
NYSE	6,054	321	10,387	42%	5,194	6,232	7,087	7,790
Nasdaq	1,726	77	2,861	40%	1,431	1,717	2,049	2,146
SOX	237	5	549	57%	275	329	289	412
Russell	538	56	856	37%	428	514	630	642
Hang Seng	14,384	1,682	32,000	55%	16,000	19,200	17,634	24,000
Shanghai	172	-3	588	71%	294	353	218	441
Nikkei	9,114	903	18,300	50%	9,150	10,980	10,911	13,725
BSE (India)	10,631	1,587	21,200	50%	10,600	12,720	12,584	15,900
DAX	5,120	304	8,151	37%	4,076	4,891	5,585	6,113
CAC 40	3,612	289	6,168	41%	3,084	3,701	3,879	4,626
FTSE	4,536	405	6,754	33%	3,377	4,052	4,807	5,066

We need that NYSE to wake up and show us something at 6,232 as that was the mark that gave us our first big sell signal and it will be the level that lets us know it's safe to get back in the water, now just 178 points away. Note that the 50 DMA of the US indexes have fallen below the 25% line, this is why the VIX is rethinking our chances of a strong recovery as a descending 50 DMA is a tough line to break over and, if we can get over 40%, these will be the next levels to watch with great interest. In Asia, the 50 DMA has fallen below the 40% line with the Shanghai's all the way down at 63% off the highs.

So we are certainly not out of the woods on a global scale but at least we have some better technical levels to look forward to. From a fundamental standpoint, the data sucks – but much of that is already priced into the market, as is an Obama victory tomorrow so we'll just have to watch and wait. As I said in the morning post, Europe and Asia are thrilled with the idea of a massive change in US policy and that should provide even more incentive for foreign investors to shift capital to the US and our futures are already reflecting that.

Still, the economic realities are frightening and there's a nearly 3-month wait from election day to inauguration day so there will be no quick fix – even if a quick fix were possible.