Analysts Clutching at Volatility Index

The CBOE Volatility Index, or VIX - which typically moves in the opposite direction of the S&P 500 - on Tuesday deviated from its norm and tilted mildly lower in a move one analyst attributes to a potential shift in the stock market's course, reports MarketWatch.

"Typically, if the S&P moves 3%, VIX will move 10% in the opposite direction And, when the VIX is stubborn, and doesn't move as much you'd expect, it is often forecasting a change in direction," said Randy Frederick, director of trading and derivatives, Schwab Center for Financial Research.

The VIX, a measure of the market's expectations of volatility over the next 30-day period, is often referred to as the fear gauge, but Frederick rejects the description.

"I don't like to use the term 'fear gauge' because then you're saying fear and uncertainty are synonymous. You can have uncertainty without having a lot of fear," he said.

Exactly, the VIX measures uncertainty rather than fear. It is still stuck in the 40s, which is moderately high and what traders would like is to see it back firmly in the low 30s or even 20s. Ultimately, earnings will determine a successful recovery, and on this front there has been some little-publicised activity as stock indices shed their most pathetic performers for new, and hopefully better, companies.

Keep a watch on companies about to enter the S&P 500 as the mere fact of being in the index means their share price increases as funds tracking the index have to buy the stock to balance their portfolio.

Rally convinces some top performers - but not all

First the bad news: In his comment after the market close, Dennis Slothower of Stealth Stocks Daily explicitly cited Wednesday's last-hour rescue rally as cause for caution.

He wrote: "The intervention we are seeing in the markets right now is blatant and strong -- apparently hoping to convince J.Q. Public that the train is leaving the station. There is a strong and concerted effort by the Fed, the administration and their cooperatives to paint this tape higher and higher, without any pull back.

He continued: "The normal process of backing and filling has not been allowed to take a normal course, possibly out of fear that it will get out of hand and seriously challenge the new bear market low set on March 6th -- just a few weeks ago."

Slothower's point: "This kind of intervention often ends badly though, as no selling relief leads to a pressure point where eventual selling erupts into a volatile profit taking decline over a day or two that can quickly remove weeks of gains." (Marketwatch)

The other two newsletters cited seem to be building up some faith in this rally, but the above quotes have to be taken seriously. The manipulations are fairly obvious when one is looking at the markets as they happen. Interventions have to be cost-effective, so usually take place at crucial times of uncertainty... such as now.

Having rallied some 20% one could call this a new bull market - after all, a 20% drop signalled a bear market. The 800 level of the S&P 500 is important here. However, the 200-day moving average is still just above 1,000, so another 25% higher. The index has, however, broken above the 50DMA. I would wait for this level to be tested and, if holds, would be a weak buying opportunity.

The Bear Market End is Near... Maybe

A veteran bear says the end is near -- the end of the great bear market. But we're not quite there yet.

In its latest issue, Growth Fund Guide draws elaborate technical parallels with the 1929-1932 bear market. In the short run, it concludes that this year's decline "could last for many more days." But not forever.

Putting the stock market in a longer perspective, Growth Fund Guide says,

"Since its October 9, 2007 high, the DJIA has appeared to us to be in the process of continuing the major bear market that began in early 2000. Recent price action seems to suggest that we could see one or more declines and advances that could rhyme with [the 1929-32 bear market] ... history is suggesting that that a meaningful low in the U.S. market is most likely to take place within the last six months of 2009 or sometime during 2010."

How "meaningful?" Elsewhere, GFG makes it clear: "When we look for a possible low for super bear market, history points to the 18 month time period after June 2009."

In other words, it's the big one. And it's close in time, although Growth Fund Guide offers little hint as to how close it is in terms of stock prices.

From The end is nigh -- and that's good.

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So we could actually be looking at 2011 before the end! Although remember that the end of a bear market is not necessarily the start of a bull run!

I still think that this analysis of 20-year cycles has much going for it.