Stocks Take out Recent Lows

Filed Under Market Commentary | 1 Comment

Stocks couldn’t find any momentum coming off Friday’s gains, the weekend stirred more fears about subprime/housing markets. Triple witching Friday undoubtedly increased trading volume on Friday, Monday’s volume was lower than Friday, but looking at Thursday’s volume we were higher than on Thursday. We will not escape more housing woes as more and more loans come for adjustment. Goldman Sachs came out and reported that subprime costs will exceed 400Billion. Expect more to come from subprime, but make sure you have raised cash for when the market does turn around.

The following two charts show why I do not think we’ve hit a market bottom just yet. First, the VIX. Notice Monday’s action as stocks took a dove the VIX hardly moved higher. Notice on Aug16th we saw a dramatic rise in the VIX foreshadowing the bottom of the recent move. Fast forward to today, we did not see an extreme move but a dull one.

Moving to the CBOE Equity put/call ratio, again showing complacency on the short side. Notice in mid August, August 16th there was a large spike in the ratio. That signaled, along with the move in stocks that the move down was over. However, Monday’s action showed that we weren’t seeing a bottom in the market.

Do think we continue lower? Yes, the downside isn’t over but I wouldn’t be surprised if we do rally a few days from here through next week, or just through to this Friday. Black Friday sales are important, most are looking for a weak number. However, if we see a large drop in sales, even negative that will fuel the downside move even more.

Cash is king.

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