One Choppy Market

 | Dec 13, 2011 | 6:00 AM EST
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Did everyone enjoy the round trip? That is exactly what the market has done since Thursday -- and yet the CBOE Volatility Index (VIX) has not budged.

I have been asked to offer an explanation for this. I cannot do so, since my experience says the VIX should rise on down days. Many have said this is bullish, while many others say bearish. I say there was not much volatility, since the market opened down and then spent the day milling around. Perhaps it's the upcoming December options expiration this week that's responsible? For my part, all I know is that a jumpy VIX tends to be associated with decent lows in the market. Otherwise this sort of market action tends to mean very little in the big picture.

We ought to take another look at the 30-day moving average of the advance-decline line, as it has come down quite a bit since reaching its overbought reading in mid-November. The indicator still isn't oversold, though I have finally found a time when I can state it will reach an oversold condition again, and that is near Christmas.

30-Day Moving Average of the Advance-Decline Line

I do not believe this indicator will go down in a straight line between now and then. In fact, I expect it to "bounce" in the next one to two days. But, after that, I'd look for it to resume downward. I admit that, when it reached the overbought reading a month ago, I did not believe it was possible for the indicator to slide all the way back to the summer lows, but I cannot rule that out now.

Monday morning I commented on the potential lack of stocks making new highs if the S&P 500, and now I must note that new lows expanded on the NYSE Monday. Consider for a minute that the market is essentially where it was Thursday afternoon, and the number of stocks making new lows on the NYSE is now more than double what it was Thursday. The situation isn't as bad on the Nasdaq, its new-lows number comes in just a bit higher than that of Thursday.

Yet, curiously enough, there was very little selling pressure anywhere, except in gold. We saw volumes in the market shrink -- 90% of the NYSE volume was on the downside, which implies we should see some sort of rally in the next one to two days.

The market has been one big chop for a month now. Sure, we saw the Thanksgiving-week decline and the post-Thanksgiving-week rally, but the bulls have not made any progress for a month, nor have the bears. If this choppiness continues for another week or so, at least it will bring the market to an intermediate-term oversold condition.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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