As expected, the stock market got a boost from Sunday’s news that the government would take steps to aid ailing mortgage backers Fannie Mae and Freddie Mac. Unfortunately, the opening pop fizzled quickly and the market trended down the rest of the day. Pessimism is clearly the order of the day at present with the S&P 500 and Dow Jones Industrial Average continuing to extend its bear market lows on a daily basis it seems. Today, however, the Russell 2000 was the leader to the downside, down over 1.5%.
One good sign for the market is that there are very few bulls to be found, with sentiment very weak. The VIX is now starting to approach 30, closing over 28 today. The March high was over 35 and the January high was over 37, intraday. The higher the figure, the more likely a bottom is near.
There has also been a noticeable increase in daily volatility, but the average daily price range is still well below those seen at the March and January bottoms. Current volatility is nowhere near the levels seen at the bottom of the 2001-03, and not even at the levels seen at the 1998 bottom.
With all this in mind, the market is clearly due for a bounce, but it is apparent that there is no sign of a Bear Market Bottom yet. We may get a rally soon from the current lows, but it likely will not be the Bear Market bottom. Bear Markets rarely die with a whimper.
Some of the recent energy and agricultural related stocks such as ANR, WLT, MEE and others are starting to rally again, and may test their recent highs. Be careful with these stocks as their recent sell-offs indicated clear distribution. If you did not sell at or near the recent highs, this is likely your second and last opportunity to sell these stocks.
As far as daytrading is concerned, the best money is still being made on the short side, and the swing trades to the downside have been amazing. LEH comes to mind in this regard.
Good Trading!
Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com
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