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Additional Market Forecast

 
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PostPosted: Sun Apr 02, 2006 9:32 am    Post subject: Additional Market Forecast Reply with quote

Two Market Forecast sections are added this week. The first chart is an S&P 100 to Russell 2000 (i.e. large cap to small cap ratio or OEX to RUT) daily chart with daily VIX from 1990. The second chart is an SPX daily chart with VIX 200-day MA from Oct '93 to Oct '94. The third chart is an SPX daily chart with VIX 200-day MA from Oct '05 to end of Mar '06 (CPC data unavailable before 1996).

The first chart shows the large cap to small cap ratio (blue line) fell to 0.77 Fri, which is below the early '94 low of 0.80. Typically, when there's a large imbalance in the stock market, a correction will take place to correct the imbalance. In early '94, SPX fell 9.7% and when the market rallied, large caps outperformed small caps. Also, in early '94, VIX (red line) had a sharp upward spike that roughly coincided with the OEX to RUT bottom.

The second chart shows SPX topped in Feb '94 and began a 9.7% two-month correction when the VIX 200-day MA fell below 12.35. (the VIX 200-day MA bottomed at 12.29 shortly thereafter, which was the all-time low). The third chart shows the VIX 200-day MA closed at 12.32 Fri. Unless SPX falls sharply next week, the VIX 200-day MA will soon reach an all-time low. So, the VIX 200-day MA indicates a high (or extreme) level of market risk over the next month or two.





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