Wednesday, October 1, 2014

Ebola Bottom?

The bears are throwing everything they can at this market.  They brought out another card yesterday, the Ebola card.  I thought I had seen every odd reason to sell, but now the latest scare is Ebola in the US.  It helped to drop the futures overnight after the US cash close.  The market has been quite resilient, but the bounces are getting weaker, and we are hanging around closer to strong support at SPX 1960.

One of the relative indicators I like to see is how VIX is performing relatively to the S&P.  If the VIX doesn't drop much while the S&P bounces, it tells you there is still demand for protection and people are still adding hedges.  That tells me we still have more selling pressure to come, because until the put buyers go away, we aren't going to see a big bounce.

Today is the first day of the month, which usually brings in some automatic stock allocation money coming in during the day.  Once this buying is satiated, I expect continuation of the downtrend.  We may break 1960 marginally, but that will be a good risk/reward buy area.

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