VIX, Oil, and a positive holiday bias

Stocks were flat to down yesterday as the Dow dropped 17-points and the S&P 500 was down fractionally.  Small caps and the I-fund lagged after the dollar rallied earlier in the day.

The S&P 500 is still flirting with a new high but after Monday's big rally, it took a little break yesterday.  Volume has been steadily declining since the November 2 low, but you'd expect that as we move closer to the holiday.  It should really dry up today and Friday so that means market swings could be greater, although we are in the middle of a very positive the holiday bias through Friday.


                  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

We haven't mentioned the VIX (Volatility Index) much lately, but it is now flirting with the multi-year low it made in October.  It hit 20.35 on Tuesday, just 0.25 above the October prior low.  Is this an indication that investors are getting too complacent?  Very possibly.
                    
                  Charts provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The VIX is a contrarian indicator when it is near extreme levels, meaning the more "comfortable" (lower reading) investors become with the market, the more bearish it actually is. 

I mentioned oil yesterday which, with the help of a weaker dollar recently, has held above the old resistance, turned support, line.  Well, I had said on Tuesday that I suspected the next move will be up, particularly if the U.S. dollar falls below support.


                  Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Well, as if on queue, it has proven me wrong as the crude oil chart fell through support with the help of a little rally in the dollar (although the dollar lost most of its early gains by the close).  It had fallen below the 50-day EMA intraday, but close back above it.  We'll have to give it the 3- 5 days to get back above support before calling it a break of the trend, but I think oil will be interesting to watch.

We know higher oil prices take money out of the pockets of consumers, which is not good for the economy, but rising oil prices are usually an indication of higher demand, which is a good sign for the economy.

The wrench in this is the dollar's influence over the price of oil.  Oil will likely move down if the dollar rallies, but so will stocks.  So, if you are in the stocks funds, you may actually be rooting for oil to move back up near $80.  It could be a sign that demand is up, the dollar is still down, and that could be good for stocks.  It's a tricky situation.


                                Chart provided courtesy of www.sentimentrader.com
      
Thanks for reading.  We (myself and the premium services) will be taking Friday off from commentary, so unless one of the services gets a new signal (in which case subscribers on the email alert lists will be notified) we will be back with you on Monday.  Enjoy your Thanksgiving weekend!