Small Cap Network Blog

The sellers have thrown everything they can at the bulls over the last three days, and have certainly done some damage. However, the market has managed to hold its ground so far. On the other hand, we’re about as close to the edge of the cliff as we can get before actually falling off.

Lo and behold, the same support lines I’ve been talking about since October are coming back into play today. For the S&P 500, that’s roughly 818 … last Thursday’s low, but also the rally point for the huge one-day bounce. Today’s low so far has been 827, but the bears are definitely putting the pressure on…or were, until late in the day. The Dow and the NASDAQ aren’t knocking on the doors of new lows yet, so I’m not overly worried.

However, I am kind of concerned about the VIX, and the apparent lack of fear investors are showing as we’re on the verge of even further long-term losses. Granted, we’ve also become largely immune to big losses, but the VIX has at least responded as expected during selloffs. The VIX closed a little lower, as the market closed a little higher. But, both moves lacked a little conviction (and we’ve seen it a dozen times now - a reversal late in the day that doesn’t even survive through the next day).

The ‘lack of fear’ is evidenced by the way the VIX has not yet run into that upper Bollinger band. That means there’s more room for it to move higher before it starts to hit a headwind. Stocks could fall in the meantime.

Now, will stocks fall? Don’t know - this is an odds game, not  a science. I don’t want to bet against the market until those support levels are broken, but I also don’t want to be on the market while the VIX is on the rise. Today’s turnaround at 3:00 p.m. EST just makes the matter more deceptive. So, I guess I’m choosing not to play until I know there’s a hand I have a better-than-average shot at winning.

One way or another we’ll have some clarity soon. I just think it’s still a little bit bearish that the selloffs are still coming so easily, and we’ve started to spend more time on the southern end of the recent trading range. 

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