You would think the markets had been exploding to the upside with the action in the
plunging volatility indexes in recent weeks. We noted last week how the CBOE
Volatility Index (VIX) caught its lower Bollinger Band on a weekly chart, and with
the VIX weekly close at 24.59, this marked the first close under this weekly lower
band since late-November, another time of investor complacency and topping stock
markets.
Now the CBOE Nasdaq Volatility Index (VXN) has hit a new all-time low with Friday's
trading at 35.38. This broke below the prior low seen last March right at an
important market top. Granted, the VXN has only been trading since early 2001, so we
don't have as much trading history to work with here. But I marvel at the general
attitude of investor complacency shown by these plummeting volatility numbers. In
addition to the VXN finishing under the lower weekly Bollinger Band this week, and
last November, it also traded under this band in June 2001 in front of the major
decline that finally ended with the 9/11 tragedy.
Some say that VIX could go lower still, down to the low 20's, and who knows how low
the VXN could go? Other bulls also point out that the Nasdaq and S&P Bullish
Percentages that I have discussed in the past have not yet hit their typical
overbought areas. The $BPSPX reading for the S&P 500 stocks finished last week at
48.8% compared to a high just over 60% in late-October, and $BPNDX is at 59% compared
to a high just over 80% in late-November (you can chart these Bullish Percent
readings on any index at www.stockcharts.com). This to me only supports my point
that we have a major bearish divergence here, and we are making lower volatility lows
now than in late-November, even as stocks have not had a very impressive performance
in recent months compared to the October-November run last year. This analysis may
not be validated immediately, but in the big picture, it says that the outlook over
the next 3 months is set up for disappointment and future selling pressure to come.
Weekly Chart: Nasdaq Volatility Index (VXN) with Bollinger Bands
SUPPORT RESISTANCE
Nasdaq Composite 1390 1450
S&P 500 880 900
Dow Industrials 8300 8500
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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