Morning Briefing, 11/18/2002

[21st Century Alert]

Title: Morning Briefing, 11/18/2002

Click Here! MONDAY a.m. November 18, 2002   The close last week was very bullish, and points to a strong opening this week. Usually the trend is dampened during the Thursday and Friday of expiration week, so there's a good chance the buying will be strong this morning. It's worth noting that the markets were able to rally on the afternoon of expiration Friday, after being down early in the day. Reports of the capture of a top Al-Qaeda operative overseas apparently sparked the rally, which really got the futures jumping when the news broke. This doesn't seem like such a big deal, this piece of news and the subsequent rally. It's just a quick pop off a news item. But it got me thinking. The foundation of the bearish doctrine involves a steadfast belief that the market simply can't go up again, because all the bad things that have already caused the bear market (we don't need to list them again) are not even close to being vanquished. And all of this bad fundamental stuff may indeed be true and valid. None of us really knows! But where does this line of thought take into account upside speculation? Since when was this banned? It's actually a little naïve to think that after a huge speculative bull market capped by an upside blow-off, investors will not be holding onto a little of that ol' speculative fever. After all, there is billions of dollars in cash earning next to nothing. If a few of the overhangs on this market are removed -- terrorists and dictators, for example -- then the markets could be right back into a mini-bubble. We got a glimpse on Friday: good news on Iraq or Al-Qaeda and people are going to buy stocks like crazy , whether it's right or wrong. It will be pure, unadulterated upside speculation. Such speculation will have dramatic spillover effects into the real economy, and could even accelerate a global economic recovery. But the bearish fundamental case never even takes this into account. Even without any of this happening, if we see the bond market drop, and the stock market move up simultaneously, then it will be clear that both these markets are discounting future economic growth. That's the best-case scenario for the bulls, and the process could already be underway. On the weekly chart of the OEX, last week's strong close broke nicely above the 10 week exponential moving average (green line), and looks on its way up to tag the 40-week average (pink line). The critical test will be the behavior at the recent top, right around OEX 472, SPX 924. A close over this will point straight higher, while a failure to get through will have to be monitored closely. On the weekly chart of the VIX, we can see the momentum is really starting to break towards more bullishness, but the process is far from exhaustion. The weekly MACD on the VIX (discussed last week in detail) shows volatility moving quickly back down to the low end of the range. If we look at the 10 week/40 week moving averages of the VIX, we can see that the 40 week moving average on the VIX was penetrated to the downside last week. This shows that the market may be on the verge of entering a true bullish phase, where the VIX once again moves down towards the low, low end of its range, in the low 20s. If you're a fan of sentiment analysis, this is actually the preferred scenario, because it makes the trading much easier if the markets can now create a large plurality of bulls. One of the big hurdles in this process -- the 40 week moving average on the VIX -- has already been decisively breached.   Definitions   This Morning Briefing is brought to you by 21st Century Alert. Your 21st Century Alert subscription offers so much more. Click here to go to 21st Century Alert's Web site. You can find this article on the Web at: http://www.21stcenturyalert.com/page/tcx/morningbriefing/2002-11-18/ To remove yourself from our mailing list, or to get your username and password so that you can access the Morning Briefing archives on our Web site, click here.