What I can’t understand is how the VIX dropped down this week. It’s beyond my comprehension. Traders have to be shell shocked into denial to allow any complacency into their thinking. But that’s what happened. I originally told clients Tuesday night I thought we’d get a retest of the low even as Europe looked higher and the Greenback got slammed. I said this even as they came back on Wednesday and took the market up. Thursday was wonderful, as they say but the VIX was way too low to sustain. I’m not a fundamentals guy and I’m gauging the low based on the idea that you can’t have a good bottom based on the earnings reports from 2 stocks (AMZN and AAPL) without the requisite fear levels. This storm came so hard and fast it didn’t even allow the media to whip up the fear that we could have a decent retest of the low and bottom it out on storm fears. So now if you look at it from the fundamental view (which I rarely do), nobody saw THIS coming and so it was not baked into the cake. We needed a retest of last week’s low. Now we have it. Fear levels are still not high enough to give us a good trading bottom. But we are going to move on from this as next week the headlines will be the election. What does the market do?
I am not in the camp that it likes Romney and not Obama as I’ve heard other forecasters suggest. Right now we are in a confirmed downtrend. That’s the most important thing you take from this election. Whether the election results give us a double bottom or a better bottom is entirely possible as we are within the time window of the NASDAQ turn on October 31, 2007. The market rallied most of the time Obama was in office so to think it can’t rally if he wins is hogwash. From what I’ve seen, I don’t think the market cares too much for Obamacare but if O does win and the market has a wipeout on real fear the headlines might blame it on health care issues but then life will go on. At some point the market is going to like the recovery from this storm to realize that down the road stocks that have anything to do with rebuilding are going to do well and ultimately it will be a job creator. But that will take some time and perhaps not really kick in until the first quarter of next year. Since it is November we have to think in terms of the Santa Claus rally and that could be a major theme.
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