This week could best be described in one word, chopfest. I felt like I had a grasp of what was going on and I still finished the week down .38%. That’s the way bear markets wear you and your equity curve down. I could sense the frustration out there in the blogosphere when reading the commentaries being written, riddled with tension and sarcasm about the intraday churning that was going on. There seemed to be a collective sigh when the markets rebounded on Thursday from what looked like impending doom. We are no way near being out of the grasp of this bear, but there were some promising signs on Friday afternoon that caused me to open a few late long positions and here were my 2 main reasons why.

  1. There were simply no good short setups that had good risk/reward. Almost all my charts were severely oversold which got me thinking that playing the long side might be the best move.
  2. Look at the chart of the Vix below. If you notice we have had a series of lower highs that have been occurring for the past few days that have been finding support in the low 46’s. As this action kept occurring, a head and shoulder pattern emerged, hinting that it could breakdown soon. Another interesting part of this chart is how everytime the Vix rose up to meet the trio of moving averages it was rejected. This is a sign of weakness and if the Vix does continue to fall further, that will be good for the overall market. Should the H/S pattern play out, the Vix should end up around the $36 level which ironically where it previously bottomed on the first trading day of 09′.