Thursday, May 20, 2010

Market summary for May 20th, 2010

Well, as shown in the charts above, it was a heck of a volatile day. I had said I thought the VIX Index was going to hit 40 again in my May Blog post. Today we blew past 40 and went as high as 46.37 before closing at 45.79, an increase of 30% from the previous day's close. The Dow closed near the low's of the day closing at 10,068, which is a loss of 376 points. Also, the candlestick pattern had a lower shadow meaning that this is not the low and tomorrow the markets should go at least lower, most likely testing the 10,000 level again.

The Put to Call ratio hit extreme levels intraday today of 1.64 at 10:30am EST and closing at a high of 1.53, which we haven't seen since October 6th, 2008, as shown in the chart above. Also, on April 14th, I posted the Put to Call ratio as being the lowest in years and it could be a sell signal. On April 15th I again stated I believed we were headed now for the long awaited correction and advised that this was the time to hedge. Since this 1.53 level is at such an extreme, we may see a rally tomorrow going into the close and the weekend. Tomorrow is Options Expiration for May but I think most of the volatility has occurred today and tomorrow should be calmer with less volatility. The candlestick pattern of today does not mark a reversal. Watch tomorrow's pattern for that indicator. Looking at the 2 year Dow chart, you can see the extreme reading of 1.51 was the beginning of the drop of the Dow to the very lows. While I see some small rallies within the Dow over a day or two as normal market movement, I do see we are now headed to retest the lows of the Dow of 6,440 and I believe we will fail to hold there. Strategies of buying Put Options, or ETF's that are Ultra Shorts, can help make you some money. But you just can't beat having a large cash position, sitting this drop out and then buying when the market reverses. If you are not skilled in these tools, you might just better be in cash and wait it out. Talk to your Financial advisor.

Note: If you can't read the charts, trying enlarging them. Also try clicking on any one to enlarge.

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