Thusday, March 19 - After Market Close

Well...well... well. We got some movement in the indicators after market close (double click the graph to exand).

Some of data supporting these indicators doesn't come in continuously during the day, but at certain times during the day. As the acompanying graph illustrates, the VIX volatility index spiked up, the CPC index spiked up, and the CPCE index changed its slope to near horizontal. Additionally, the daily full stochastics is at a top and about to indicate a sell signal, the S&P and the Dow both hit their 40-day simple moving average, and the relative strength index hit 65. All of these indicators give indications of an imminent market turn-around.

But a word of caution, when you are at the peak of a market trend channel, the data supporting the indicators that makes them go from bullish to bearish are usally right on the edge. What I mean is, one good day with prices going up tomorrow could easily reset some of the indicators back into a bullish condition and delay their turn-around.

Today was a down day for stock trading volume... it's almost like the bulls and bears were going through the motions making sure neither side allowed prices to get too high or too low. Tomorrow, Friday, is monthly options expiration at the close of the market. The bears know the bulls will be fighting hard tomorrow to get the S&P to close above 800 to squeeze the short traders; i.e., they are saving their bullets. The same for the bulls, they know they will have a tough fight on their hands tomorrow.

That being said, I expect the bulls to put up a good fight tomorrow along with help from the congressionally sanctioned federal government Plunge Protection Team (PPT). They will both be active and there is a good chance the S&P will close above 800. Should this happen, it might have somewhat of an effect on the stock market indicator movements in the graph and reset them to a bullish condition.

Mitigating a potential upward movement in stock prices is the Congressional Budget Office (CBO) will be releasing a special report sometime tomorrow with some very bad news. It is my understanding they will annouce the Federal deficit for this year will be an additional $1 billion in the red according to their latest estimate, or a total of $3.7 trillion. Should this happen, I can't see the market rallying on this type of news, but stranger things have happened.

For conservative investors, you might want to wait for the trend indicators to confirm a market turn-around before going short. The market might go down heavy on Friday morning, but fight back up into postive territory in the afternoon. So that would mean waiting until Monday to go short, or even Tuesday or later if the market continues to rally and the indicators fail to establish a bearish condition. There's the possibility you might miss part of the downturn tomorrow, if it occurs, but the market should trend down for another week or two.

I will probably be looking at getting in for 25% of my speculative portfolio before the close tomorrow awaiting a Monday decline after options expiration on Friday. This would be considered a more risky investment profile. If the market continues down next week, I will add to my positions.

Another point to consider is the CBOE put-call ratios will change after options expiration tomorrow, and so will some of the indicators. Thus it might be more than worthwhile to wait until Monday after the market has sorted things out.

I will try and get an update out tomorrow before the market opens.