Thursday, October 25, 2012

SPX, NDX, INDU, VIX: Signals Suggest a Bounce is Due

There's not much to add to yesterday's update, so I'll simply let the charts do most of the talking.  The first chart worth noting is the Volatility Index (VIX), also known as the "Fear Index" since it substitutes as a good indicator for investor sentiment (high VIX means investors are fearful; low VIX means complacency).  VIX has closed outside its upper Bollinger band the last two days in a row .  This is often the precursor to at least a short-term rally in equities.

Next is the S&P 500 (SPX) daily chart.  As yet, still no material change here. 

The SPX hourly chart is showing some early bullish signals in RSI and MACD.

The Dow Jones Industrials (INDU) probably still needs at least one more fourth wave rally and fifth wave decline -- though yesterday's little rally and decline could theoretically qualify, which would mean the decline is complete.  The strength of any forthcoming rally should narrow the options. (continued, next page)

An interesting minor break in the log-scale long-term Nasdaq 100 (NDX) chart, though the noted trendline is still intact on the linear chart (not shown).  The notation about "bull market" oversold simply refers to the fact that "oversold" doesn't mean the same thing in a bull market as it does in a bear market.  Bear markets can stay oversold for a very long time -- so depending on whether the cycle has shifted or not, the RSI reading might not mean much.

The 10-minute NDX chart also looks like it wants a fourth wave bounce and another decline.  Trade back above the noted level would be a warning to bears.

In conclusion, the market is giving some signals that at least a short-term bounce could start at any minute.  At the moment, the wave structure isn't conducive to drawing much in the way of any "new" concrete targets -- right now it's more about watching how the market reacts to support and the key overhead levels.  I'll draw new targets after the next decent bounce.  Trade safe.

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