Harry Dent’s update from October 16 is below. He’s looking for a top soon:
CNN says that “economists are predicting that the nation’s gross domestic product (GDP) rose 3.2% on an annualized basis in the third quarter. That would be the strongest level of growth in two years. The official number comes out Thursday.” Could late Thursday be the time to sell this news?
NEoWave Institute’s Glenn Neely is forecasting the largest vertical drop of the decade for the S&P 500. Neely predicts the stock market will decline 50% in the next 6 months. Neely is an Elliot Wave theorist:
“Technically speaking, according to NEoWave a correction began at last October’s low; the March-June rally is the final leg of that correction,” Neely explains. “The March-June rally is now ending, allowing the bear market to resume. During the next six months, the S&P will decline 50% or more, breaking well below 500!” Currently, the S&P is hovering around 917.
Other Elliot Wave analysts are also tentatively calling either an end to the rally now, or that it is coming soon. For example, Tony Caldaro:
MEDIUM TERM: uptrend that may have topped
‘If we count the SPX 956 high as the end of the uptrend. Then the decline from that level can be counted as a five wave Minor wave 1: 936-946-920-928-904. From today’s oversold levels we would now get a rally, Minor wave 2, back to the previous 4th wave (928), or even challenge the 935 OEW pivot. This should generate an overbought short term momentum reading before the market turns over and enters a declining Minor wave 3. The 935 OEW pivot should act as significant resistance during this rally. Should the market break through this resistance then some other wave count is at work. Should the market break below SPX 904 before rallying above 920, then Minor wave 1 would be extending.”
The Pragmatic Capitalist has a great post about the recent behavior of the VIX:
“The VIX is currently 34% from its 50 day moving average. In the last two years since the recession began we have seen three other instances where the VIX traded 30% from its 50 day moving average on the downside. The first occurred in late September and early October of 2007. The second occurred in May of 2008. And the third occurred in mid-December 2008. All three moves foreshadowed large equity sell-offs. The first one in September of 2007 marked the top of the market. The second market an intermediate top in the market after Bear Stearns went down and the third occurred just before the market sell-off in early 2009.
Clearly, three data points is not a comfortable amount of data with which to form a trading strategy, but there is no doubt that the sharp decline in the VIX represents a high level of complacency and comfort in high risk assets. Considering the quick rise in the equity markets and the questionable underlying fundamentals and we might just be staring at a market that is ripe for a sharp decline.”
Bill Luby in VIX: How Low Can It Go? at SeekingAlpha (5/8/09) ventures that the VIX would not fall below 25-27:
For the record, the lowest 10, 20 or 100 day historical volatility level recorded in the past six months was a 10 day HV of 20.38, which translates into a VIX of 26.69. For anyone looking for the lowest possible extreme in the VIX in the near future, 26 would be a good bet. This is also consistent with my earlier prediction that the VIX is not likely to breach a floor of 25-27.
As of 11:55 Eastern on Wednesday, VIX was trading at 27.75 ish with a low for the day so far of 26.57. If TPC and Luby are right, we will see a market top just around the corner…how big the correction may be is another question…
