"TAP não sobrevive se se mantiver pública", garante Pinto Luz

[Ulisses Pereira]

"Breaking the Pattern"

By Helene Meisler
RealMoney.com Contributor
1/22/2010 6:59 AM EST

"There was a change in the market Thursday. They did "sell the news," but not the good news. This time they sold the bad news.

There's something else too. For months on end, since August, we have had a market that goes down for a few days at most, and a few percent at that, before it goes right back up again. The pattern has been to buy every single dip, no matter how shallow. We all know the pattern; I've written about it and so has half the investment world.

But we all know at some point the market gets us all into the habit of the pattern and then that pattern changes. Thus far, we are only down 3% from the highs and anecdotally I see folks already discussing how we should bounce off the 50-day moving average. That sounds like complacency to me.

Now I know non-anecdotally the CBOE Volatility Index, or VIX, started to move Thursday. Heck, it "rallied" almost 20% on the day. That's a move. But is it jumpy? Let's say it's getting there. Even if we look at the October move we can see there were two surges higher. The first surge looked like a surge but then it hung around for a few days and then surged again. The second time it looked jumpy as it broke out to a higher high, moving itself away from the pattern.

I know this is more an art than a science when I talk about the jumpy VIX. Folks often ask what level it would have to get to, so in this case I'm inclined to say a move up over 25 would be what I'd consider starting to get jumpy. That would then look to me as though the VIX was really going somewhere. Right now it looks like it had an oversold rally within a downtrend and that's it. Keep in mind this isn't exacting. To me it's what it looks like when I see it (sort of like when Mom calls and you know she really means it.)




Of course, we all know I am also keying off the 10-day moving average chart that I showed here Thursday. The put/call ratio was once again over 90% which is good news. But go back to that October time frame and you can see how much higher the moving average went before we got to a low in late October. This isn't even close to that sort of move.

And yes, the McClellan Summation Indexes have all rolled over. Now it would take quite a big rally to reverse their course. There is also the "problem" of the 30-day moving average of the advance/decline line that I showed here Tuesday morning. It remains overbought.

Short term, we find ourselves at the 50-day moving average lines that so many folks watch and fret over. Long-time readers know that I could care less if we break a still-rising moving average line because a still-rising moving average line is easy to recapture. It's a rolling over or declining one that is a problem if it breaks. Fifty trading days ago was Nov. 9, when the S&P 500 was around 1085, so unless and until we come down to that level the moving average line is still rising. Who cares if we break it?

So it's possible we make a stand here at the 50-day moving average and then break it later on. I am more interested to see if we break the pattern in the market. I'd prefer to wait for a jumpier VIX, I'll wait until we get oversold, and I'll wait until at least the moving average of the put/call ratio rises a bit more. And we're finally heading in that direction."

(in www.realmoney.com)