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Looking at the S&P graph, it seems that, at least for now, volatility has abated and the stock markets are beginning to bottom. We’ve had a good bounce off of the 200 day moving average, MACD has crossed over as has RSI crossed back above 50.
Supporting the idea that the markets may be bottoming is what seems to be a top in the CBOE Volatility Index which gives a measure of the implied volatility in stocks through S&P 500 options. Volatility (read: fear) which drove the markets in the recent correction seems to have finally abated and we can begin looking for more rational, fundamentally based price movements which leads us to the review of market fundamentals this week.
Last week, we saw the markets push downwards towards the psychologically significant 10% correction point and saw the charts of the major indexes showing hammers as omens of good news to come. Follow through on Friday left us optimistic of the week ahead (this week) and we were not let down. After some tepid trading days at the beginning of the week, investors seemed to have gotten some nerve back and we should start seeing some of the institutions which held out while waiting for a correction (usually defined as a 10% pullback especially after the torrid run we’ve had) start putting their money back in play.
Several high profile retailers like Abercrombie and Gap chimed in with moderately good news. And, new home sales beat estimates (however low they were to begin with). Subprime will continue to rear its ugly head and there will likely be continued testing in the markets over the next two or three months. But, now is a good time to start looking for buy points for those stocks on your watch list as this looks like a base formation period for the market as a whole and I anticipate broad based breakouts later in the year.
August 27th, 2007 at 1:50 pm
The next dip does look to be a buying opportunity. The VIX seems to indicate that we are in for some sort of a dip here though.