A wider range, yup, that is what I wrote last week. The only thing that has happened since the market hit more record highs recently and then unceremoniously dumped last week is that it will now trade in a wider range (1955-2010 on the S&P).

And so it goes, the volatile market is going down today after it went up on Friday. What is more interesting, though, is the big fall the major indices took right out of the gate this morning. It’s as if the market just got some bad news, some really bad news. Actually, it is more like the sleuthing computers were waiting to dump stocks after the big rise on Friday. That is what happened, more than likely. Humans had little part in the fall other than the directive, “Go forth and find weak stocks to sell.”

  • Overall, however, it looks like the bearish ball is now rolling and there’s little that can be done to stop it anytime soon.

The above might be true, in the sense that trading in the range is the way of the market now. We might not see any new highs for a bit. It is not true in the sense that the market is headed toward some absurd levels in an outright collapse.

  • There’s a ceiling at 21.4 [VIX], and I’ve got a feeling the S&P 500 is going to find its floor around 1955 right around the same time the VIX tests its ceiling.

Right now the VIX is between 15 and 16, more or less, a bit higher than it has been, but it is no danger zone. What the writer above is saying is that these two data points are lines in the sand for the market. If both are crossed simultaneously, then …

  • If the VIX happens to break through 21.4 and the S&P 500 breaks under 1955 (both should happen around the same time), then buckle up. At that point, the S&P 500 is likely to fall all the way to 1815 before the bleeding stops, and the VIX will have to race all the way to 48.0 where it peaked the last two times stocks went through a normal-sized correction.

If the above happens, then we have a problem Houston, but how likely is it that it will happen, given the recent positive economic data?

  • Investors are feeling positive from the latest economic reports including the strong GDP data.
  • Personal Spending (now called “Consumption”) rose by +0.5% in August, which was above the expectations for +0.4% and well above last month’s unrevised figure of -0.1% (June: +0.4%, May: +0.3%, April: -0.1%, March: +1.0%).

Clearly there is an upward trend in consumer spending and as we move into the heftiest time of the year for consumer spending, this is good news. It is also good news because consumers will have the money to spend, as they are making more money.

  • Personal Incomes rose +0.3% in August, which was in line with the consensus expectations for an increase of +0.3%.

Personal incomes are rising and fuel costs are dropping. This is a nice combination and good for my thesis. Gasoline futures (RBOB) are right around $2.51 today and …

  • Oil demand in the United States is falling. Even as motorists drove an estimated 266.8 billion miles on U.S. highways and roads in July, up 1.5 percent just below the 10-year high recorded in August 2007 gasoline demand fell as better fuel efficiencies and alternative fuels are cutting our demand.

Yes, with the above and the continued production quotas remaining where they are, it is likely we will continue to see over-supply, which could mean a sizeable drop in the price of gasoline, which will put even more money in the pocket of consumers this fall and winter.

  • The Energy Information Administration reported that last year we used around 8.8 million barrels per day of gasoline which was 4.4 percent less than the ten-year high of 9.2 million bpd seen in 2006.

Yep, the trend is clearly down in this commodity, and that is good news for the US economy. So why, then, is the market going down strongly today amidst the other positive news for the US economy?

I don’t know, other than the scenario I have laid out. Once the computers get going, a snowball effect happens, and the only thing keeping it from turning into an avalanche is the reality of the US economic situation.

Speaking about computers driving the market, well, things could get worse in this area.

  • Wall Street Journal story last Tuesday detailed how high-speed stock traders are now looking to laser technology to execute trades “at the speed of light,” because “nanoseconds — billionths of a second — can spell the difference between profit and loss in their algorithm-driven trades.”

The future is now and it all sounds so scary.

High-Speed Stock Traders Turn to Laser Beams

When I was a kid, laser beams were weapons, bad weapons that were scary. Today, laser technology is common and it is utilized in a wide range of positive applications. Apparently, stock trading is now one of those applications. Sheesh!

  • Researchers have developed a device that cheaply and efficiently converts the energy in sunlight into hydrogen, which can be used as a fuel and is easily stored.

The truth is technology will make life better and it will make life worse. It is the proverbial double-edge sword. Now, if the above can translate into practicality, the technology will make our lives better. It is close.

  • The new device is remarkable because it meets three of the four criteria needed for a practical device: high efficiency, low cost, and the use of abundant materials (so it can be used at a large scale).

The fourth criterion – reliability – is a tough one. The solar cells they use now in the process cause rapid degradation of the catalytic material. My guess is with the current R&D in solar technology, they will soon lick this problem, which will then convert research into reality. I wonder what that will do to the price of oil.

Trade in the day; invest in your life …

Trader Ed