Lightning Rod

  • September 28, 2001
  • Len Yates

Don’t
let today’s price action fool you. 
I can’t help but believe that we will re-test lows very soon.
More than likely, today’s apparent breakout will only serve as a
lightning rod, attracting selling early next week.
Note that only the blue chips broke out; not the Nasdaq.

However, today’s
action does portend well for this perhaps becoming a double bottom, nothing
worse. (Note that it might not look like
a double bottom on a Nasdaq chart because the second bottom would be so much
lower than the first. However, it should
look like a double bottom on a chart of the Dow or S&P 500.)

Again, the bottom
day should be recognizable by a sharp volatility spike, indicating fearful
selling and a climax. Watch the VIX for
something similar to what happened last March/April (twin peaks). 

After the market
bounces off this bottom, it could either go into a steady climb, or roll over
and head further south. If the bounce is
vigorous, this will be a clue that we’re going into an intermediate term
up-trend.

By the way, and this
doesn’t relate to anything except maybe it’s a sign that we’re near the
bottom: I read that the quarter just ended was the first quarter in 25 years
without a single new IPO. 



While I am not
usually so bold in making directional predictions, I have found the market much
more predictable during sell-offs. It
just seems to follow more reliable patterns during times of fear.
I’ll be discussing this in my session at the TradingMarkets2001
conference next week in Las Vegas.Â