The Never Ending Story
by
, 11-01-2011 at 05:27 PM (2235 Views)
We just can't seem to escape European headline risk. Between Greece's unexpected referendum on its bailout plan and Italy's financial downward spiral, risk has returned almost as fast as it seemingly disappeared. Not that it every really left, truth be told. But the market would have us believe it did.
The Volatility Index shot up 20% today, which was in addition to the 10% surge yesterday, so fear is rising.
And Treasuries soared as well, leading the yield on the 10-year Note to drop back under 2%.
Market data wasn't inspiring either. October's ISM Manufacturing Index fell to 50.8. Economists had expected it to rise a bit to 52.1.
There was a modest rise of 0.2% in construction spending in September, but that was a tad below estimates of a 0.3% increase.
Here's today's charts:
NAMO and NYMO appear to be heading to lower levels after today. Not all support has given way to this point, but some of it did. Both are back in negative territory and they also remain on sells.
NAHL and NYHL dipped lower and also remain on sells.
TRIN and TRINQ didn't move much after today's action. They were suggesting moderately oversold conditions yesterday and they remain in the same condition today. Normally, I'd have expected some measure of a bounce after yesterday, even if it didn't hold. But we gapped lower at the open in a big way instead and saw significant downside follow-through, which is somewhat troubling in the short term.
BPCOMPQ adds to the overall negative tone as it dropped lower and triggered a sell signal after today's action.
So all signals are in a sell status. That puts the Seven Sentinels in an unconfirmed sell condition, but until NYMO drops to about a -53 on the chart, the system officially remains on a buy. But I think this market warrants a lot of caution at the moment.
I am still 100% G fund after today, but if the S&P 500 falls below 1200 points, I may begin building a modest position in stocks. I am not following buy or sell signals here, I am simply looking to build a longer term position in stocks over the coming months to a year. As I've said many times before, the volatility is more than I can trade around with our limitations so I am taking a longer term approach. I am not convinced we'll be seeing higher prices into the holidays, but it's certainly possible should the current selling pressure drop bullish sentiment levels. Even better would be a corresponding rise in shorting activity. The main problem I see is systemic risk to the global economy going from bad to worse. And I don't think that's a question of "if", but "when".