“Confiança” na dívida da periferia é “positiva”

[Camisa Roxa]

MONDAY a.m.
February 3, 2003



The 40-week Average
by David Nichols

The major averages crossed below their 40-week moving averages way back in September, 2000. Remarkably, they have remained below this 40-week average throughout the entire bear market.

Here is a weekly candlestick chart of the OEX going back to late 2000. The pink line is the 40 week exponential moving average (which gives more weight to current prices than a simple moving average), and the green line is the 10-week exponential moving average.



It's almost incredible how well the 40-week average has capped all the rallies, making this average a very important benchmark for gauging the bear market. You just can't say a market recovery is "for real" until this 40 week average is firmly and decisively breached to the upside. That would be the time to get excited about the possibility of a true bull phase for the markets.

Until then, we have to deal with the market that's right in front of us, which looks and feels just like the same old bear market. This last rally was squashed yet again at the 40-week average -- twice -- and has also dropped decisively below the 10-week average. Once prices are below the 10-week average, the action has the potential to get pretty wild to the downside.

Over on the Nasdaq 100, it's the same story. Although Nasdaq stocks lately have been the relative strength leader, they are still down in the danger zone.



On the sentiment front, the hourly charts paint a picture of a market in trouble, gripped by a spreading wave of fear. OEX options traders have responded appropriately to this latest decline -- for a bear market, that is.



The VIX rose very sharply during the initial down move in the OEX. Then, when the OEX merely managed to stop going down , the VIX started to back off. This is a now-classic bearish sentiment pattern, demonstrating that it takes very little upward price movement to convince traders that the worst is over.

On the Nasdaq 100 and its popular proxy, the QQQ, the sentiment picture has been weird in a negative, bearish sort of way. Only last week -- after the big drop -- did fear register in the hearts and minds of Nasdaq speculators. On the QQV, the volatility measurement of QQQ options, the first "spark of fear" didn't really register until Monday of last week.



The VXN, which measure the implied volatility of the "big" Nasdaq 100 options, pretty much mirrors the movement of the QQV, confirming this weird sentiment divergence.



I had a question the other day why these two -- the QQV and the VXN -- don't always move in sync with each other. The answer to this is they are two different options markets, and their implied volatilities are independently calculated in real-time. They are gauges of supply and demand in the options markets for two different trading instruments, so there is no reason why they should be exactly the same. Personally, I prefer to look at the QQV as there are tens of thousands of contracts traded every day, making this the most liquid measurement of sentiment on the Nasdaq 100.

The bottom line is that all last week the markets took the edge off that sharp thrust downward. They stopped going down, and went sideways for a week. We saw false breakouts and false breakdowns too, all in the course of one week. This is usually a tell-tale sign of market that is pausing in its main trend, which in this case means the markets are storing up the needed energy to make another push down.