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Saturday, July 05, 2008 4:32:44 PM
Amateur Investors Weekend Stock Market Analysis (7/5/08)
http://www.amateur-investor.net/Weekend_Market_Analysis_July_5_08.htm
At this point it doesn't take a degree from the Wharton School of Business to know the market is very oversold. However as we saw in 2001 oversold can become even more oversold in a Bear Market which we have been in for some time now. The question many of us are probably wondering at this time is how much more damage will be done before we get the next major oversold bounce like we saw from mid March through early May.
One positive development over the past few weeks is that the % of Bearish Investment Advisors is once again 10% greater than the % of Bullish Investment Advisors (point A). Since the mid 1990's this has been a very rare occurrence as shown by the chart below as there has only been "4" of them (points B) prior to this latest occurrence. Also note that each one was eventually followed by a substantial oversold rally (points B to C).
The last time the % of Bearish Investment Advisors was 10% more than the % of Bullish Investment Advisors was in mid March (point E) which was followed by a 14% rally in the S&P 500 over a 44 day period (points F to G).
Now the bigger question is has there been enough fear generated among investors to allow for a bottom to develop in the near term? If we take a look at a weekly chart of the Volatility Index (VIX) so far the VIX has only risen up to the mid 20's (point I). Keep in mind the last three times the S&P 500 made a significant bottom (points J) which was then followed by a substantial oversold rally (points J to K) the VIX rose well above the 30 level (points L).
Furthermore if we look at a 5 Day Average of the Put to Call Ratio, in the past, when it has risen at or above the 1.2 level (points M) this has been followed by an oversold rally (points N to O) of varying magnitudes. Currently the 5 Day Average of the Put to Call Ratio is still well below the 1.2 level. Thus with neither the VIX or the 5 Day Average of the Put to Call Ratio at an extreme level so far there hasn't been an excessive amount of fear generated by investors. At this point I would be much more convinced of a nearing bottom if both the VIX and Put to Call Ratio had reached levels like occurred this past March. However keep in mind all it takes is a few big down days which could lead to a big spike upward in both the VIX and Put to Call Ratio.
http://www.amateur-investor.net/Weekend_Market_Analysis_July_5_08.htm
At this point it doesn't take a degree from the Wharton School of Business to know the market is very oversold. However as we saw in 2001 oversold can become even more oversold in a Bear Market which we have been in for some time now. The question many of us are probably wondering at this time is how much more damage will be done before we get the next major oversold bounce like we saw from mid March through early May.
One positive development over the past few weeks is that the % of Bearish Investment Advisors is once again 10% greater than the % of Bullish Investment Advisors (point A). Since the mid 1990's this has been a very rare occurrence as shown by the chart below as there has only been "4" of them (points B) prior to this latest occurrence. Also note that each one was eventually followed by a substantial oversold rally (points B to C).
The last time the % of Bearish Investment Advisors was 10% more than the % of Bullish Investment Advisors was in mid March (point E) which was followed by a 14% rally in the S&P 500 over a 44 day period (points F to G).
Now the bigger question is has there been enough fear generated among investors to allow for a bottom to develop in the near term? If we take a look at a weekly chart of the Volatility Index (VIX) so far the VIX has only risen up to the mid 20's (point I). Keep in mind the last three times the S&P 500 made a significant bottom (points J) which was then followed by a substantial oversold rally (points J to K) the VIX rose well above the 30 level (points L).
Furthermore if we look at a 5 Day Average of the Put to Call Ratio, in the past, when it has risen at or above the 1.2 level (points M) this has been followed by an oversold rally (points N to O) of varying magnitudes. Currently the 5 Day Average of the Put to Call Ratio is still well below the 1.2 level. Thus with neither the VIX or the 5 Day Average of the Put to Call Ratio at an extreme level so far there hasn't been an excessive amount of fear generated by investors. At this point I would be much more convinced of a nearing bottom if both the VIX and Put to Call Ratio had reached levels like occurred this past March. However keep in mind all it takes is a few big down days which could lead to a big spike upward in both the VIX and Put to Call Ratio.
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