Monday, July 6, 2009

Breadth vs Price Divergence

Today was all about a technical relief bounce. Look at the S&P you will see an almost perfect bounce off the the 200MA which happens to also paint as a double bottom with the 6/23 lows. The BKX paints a similar picture.

After calling a VIX Bottom late last week (and consequently a market intermediate-term top), the VIX has now rallied about 11.8%. Based on the data, the average counter move expected is atleast +16% to as high as 44%. Thus, we can expect the VIX to continue upwards for a bit more. Any further upside move threatens the intermediate term down trend line on the VIX chart (which would also imply a sustained market move down).

In the short term, NYSE breadth finished negative, while the S&P managed to close up. Looking back over the past 10 years, the market has closed down 80% of the time within the next 3 days (or 75 times out of 94 occurrences).


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