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The Most Frightening Chart in the Market Right Now

By Jeff Clark
Wednesday, November 1, 2006

As the sun sets on All Hallows Eve, and the witches and warlocks roam the streets, Wall Street is treating the bulls to bags full of chocolate bars, candy corn, and rising stock prices.
 
The bears on the other hand, like Ichabod Crane racing through the forest on his midnight ride, are just trying to hold on to their heads.
 
Here’s the most frightening chart in the market right now...
 
 
As you can see, the Volatility Index (VIX) is trading near its yearly lows, and on the verge of breaking out to the upside of the bullish falling-wedge pattern.
 
A rising VIX is typically associated with declining stock prices. And this chart suggests investors should be very cautious about committing more capital to the stock market right now.
 
It’s still too early to get overly aggressive on the short side. Bulls still have the momentum, and until the VIX clearly breaks out – which could happen as early as this week – it’s best not to bet too heavily against the trend.
 
Chasing momentum from the long side, however, is also the wrong strategy right now.
 
Stocks enjoyed a fantastic month in October. The Dow, S&P 500 and Nasdaq gained 3.4%, 3.1%, and 4.8% respectively. But the market is starting to look a little tired. And, with nearly two-thirds of the S&P 500, having already reported earnings for the quarter, there just aren’t that many new catalysts for higher stock prices.
 
I’ve been skeptical of the market’s rally over the past month, and perhaps a little too cautious...
 
But with the semiconductor stocks continuing to lag behind the overall market, and with the VIX on the verge of breaking out to the upside, a little bit of skepticism is like an antacid on Halloween night. It’s not as rewarding as a Snickers bar, but it’ll prevent a painful bout of indigestion.
 
Be careful.
 
Best regards and good trading,
 
Jeff Clark




Recent Articles
Market Notes
Big Pharma buyouts continue… Merck buys Sirna for $1.1 billion, causing stock price to double.
 
Gold remains above $600 for a third straight day.
 
Chinese companies continue to power ahead… Huaneng Power, China Mobile, and China Southern all hit new highs.
 
In The News… Uranium prices surge.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1223.75 +0.1% +10.9%
Oil 37.80 -1.1% +0.8%
Gold 136.50 -1.9% +20.7%
Silver 28.08 -4.9% +57.6%
US-Dollar 79.65 +0.6% +5.2%
Euro 1.33 -0.3% -10.5%
Volatility 17.99 -0.2% -18.6%
Gold Stocks 576.48 -2.5% +25.0%
10-Year Yield 3.16 +7.5% -8.4%

World ETFs
Symbol Price
Change
52-Wk
USA 122.83 +0.1% +10.8%
Canada 30.41 -0.5% +17.1%
Russia 22.00 +0.1% +18.9%
India 38.15 +0.6% +22.5%
Israel 16.92 +1.0% +11.2%
Japan 10.56 -1.2% +6.6%
Singapore 13.66 -0.4% +18.6%
Taiwan 14.87 -0.3% +19.0%
S. Korea 57.35 +0.3% +21.8%
S. Africa 71.15 -1.5% +28.2%
China 43.99 +0.3% -1.5%
Lat.America 52.69 -1.0% +8.5%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 134.90 -2.1% +18.0%
Big Pharma 64.04 +0.1% -2.8%
Internet 72.89 +0.4% +27.4%
Semis 16.25 +0.4% +26.6%
Utilities 30.98 -0.7% +0.2%
Defense 18.55 +0.4% +8.7%
Nanotech 10.16 +0.8% +1.6%
Alt. Energy 10.20 -0.4% -4.6%
Water 18.77 +0.8% +14.5%
Insurance 16.14 +0.4% +19.6%
Biotech 20.65 +0.4% +27.3%
Retail 19.65 +0.3% +27.0%
Software 24.83 +0.7% +24.3%
Big Tech 53.88 +0.1% +22.7%
Construction 13.30 +0.8% +16.2%
Media 13.75 +0.2% +23.7%
Consumer Svcs 67.43 +0.1% +23.1%
Financials 54.95 -0.1% +7.0%
Health Care 63.89 0.0% +1.3%
Industrials 63.79 +0.4% +19.8%
Basic Mat 74.54 -0.1% +27.5%
Real Estate 55.53 +0.3% +24.4%
Transportation 91.65 +0.3% +25.1%
Telecom 22.69 +0.2% +14.6%