Should Be Enough for a Rally

 | Dec 24, 2012 | 7:00 AM EST
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Note: Helene Meisler is taking the rest of the week off. Her next column will appear Monday, Dec. 31.

As I'm sure longtime readers have already guessed, in my view the most bullish development Friday was that the CBOE Volatility Index (VIX) got jumpy. It is always so difficult for me to express in words, or even in chart form, what exactly a jumpy VIX looks like. But we do know it when we see it, and a new spike high followed by a close at session lows certainly looks jumpy.


Of course, if you step back and want to look at the VIX as a chart, you might think it looks like a giant base that ought to eventually get to the upper 20s. But it's holiday time, and for this moment we'll note that the VIX got jumpy Friday, and that the put-call ratio rose above 100% for the first time since Dec. 4.

We will not fuss over the volume readings -- which came in negative -- or the fact that the Market Vane survey is now showing bullishness at 66%, which compares to a 69% level at the September and March highs. We will not fuss over the upcoming intermediate-term overbought reading, nor over the potential for several indicators to make lower highs. That's all on the docket for January.

For now, we'll just focus on the fact that the VIX became jumpy and the put/call ratio got high. That should be enough to produce some sort of rally this week as Washington haggles and hopes anew for a deal.

In the meantime, it seems a particular comment of mine struck a chord last week -- about how charts always look great at tops and bad at bottoms. So I thought we might take a look at a chart -- no names for now -- and see how it looked this year. I think the chart proves my point rather well, but you can decide for yourself.

The chart above rallied strongly on a breakout in March, having closed on the highs for four trading days in a row. If there is someone who thinks this chart doesn't look great, please explain to me why. I am a contrarian, and the only thing I can say is "wrong" with this chart is that it has run too far, too fast. That does not make it a bad-looking chart.

Now notice what transpired after that. The price barely took a breather at support. It underwent a steady decline, with very few rallies along the way, for two straight months. So it enjoyed four days of greatness, followed by two months of horror. Again, if someone can point out what is good about this price action, you are likely a perma-bull, since this is a chart only a mother could love.

Now let's step back and look at the chart's performance throughout the year. The run into the March high was nearly a double. It looked great. But who would want to sit through that more-than-30% decline in April and May?

The stock, Bank of America (BAC), looked excellent in March and horrible in May; that's the way charts work. They rarely look good at lows or bad at highs. In my view, that's why there are always so many bulls at highs and so few of them at lows.

I want to wish everyone a very Merry Christmas and happy holidays.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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volatility is quite low here, and we could see some downsides here in the short term. ...



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