Semi Climax

• July 12, 2002
• Dan Chesler

Thursday’s action was constructive
and not entirely surprising, given the deep over-sold conditions of late. 
Morning weakness was accompanied by the VIX
(
$VIX |
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PowerRating) briefly rising above 41, intraday. While not as high as post-9/11
levels, this is still historically high and reflects a healthy amount of
investor fear. Both the market and the VIX reversed around 12:00 p.m. (EST). The
VIX ultimately closed below its opening price after having gapped up in the
morning, paralleling last September’s pattern.

NYSE Volume was above
average on Thursday, perhaps even considered a “semi-climax,” at 2.1 billion
shares. At the market low on Sept. 21, we saw similarly high levels of volume
(2.3 billion). Lastly, the NYSE TICK got as low as negative 1100 intraday. The
last time the TICK got this low intraday was back on June 14, which was followed
by a fierce 225 point rally in the Dow (albeit lasting only 1.5 days, but rally
it did). 

Going back to the September lows, we also saw extreme negative readings in the
TICK. I offer the following chart as a visual comparison between the September
lows and the recent low on Thursday. Small blue and red arrows (you may need to
squint to see them) mark the relevant reference points.  

 

 

Another positive
note for the bulls, Thursday’s strength was concentrated in leadership groups
such as Biotech
(
BBH |
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PowerRating) +6%,
Semiconductors
(
SMH |
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PowerRating) +6.7%, and
Financials
(
XLF |
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PowerRating) +1.36%. All of these
groups saw relative out-performance vs. the broad market
S&P 500
(
SPY |
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PowerRating) which gained 0.81%.
Gold
(
XAU.X |
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PowerRating)) was actually the biggest decliner Thursday, down
3.6%.

I had a short bias for Gold coming into Thursday (for day traders) based on
Stoch-Trap indications. This worked out nicely, as
Newmont
(
NEM |
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PowerRating) opened near its highs and closed near its lows,
with additional follow through selling today (Friday). I also had un-filled buy
orders in both the
(
QQQ |
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PowerRating) and the BBH on Thursday; range was insufficient to
stop me in. Friday I re-entered my bid for the Nasdaq 100 (QQQ), and placed new
buy orders in the S&P 500
(
SPY |
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PowerRating), Oil Service
(
OIH |
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PowerRating), and Retail
(
RTH |
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exchange traded funds. If I get stopped in, I’ll be keeping my stops tight, near
Thursday’s lows.

We still need a surge in breadth and price momentum to kick-start a sustained
rally. We are in the midst of a vicious bear market and estimating the ultimate
low is not a game for the meek.

Have a great weekend.

Dan