Friday, October 01, 2004

In the last comment, I pointed out the apathy regarding semiconductor shares.  With the nice rally since then, not much has changed in that respect (Rydex assets are still very low), so I would not be too quick to step in front of the up move there. Today's action, though, is moving many of our contrary indicators to true extremes as can be seen from the intraday charts.  Our shortest-term model on the Nasdaq is now down to 13%, one of the lowest readings seen so far this year.  Past instances approaching this level occurred on 4/2, 5/25 and 9/13, which mostly lead to consolidation or weakness in the week ahead.  We have positive seasonality for October that runs the first few days of the month, with weakness in the middle.  I suspect what we will see from this point is a struggling move higher over the coming days, with some weakness to follow probably by late next week. The much talked-about implied volatility measures (VIX, VXO and VXN) are pushing to new lows, which has mostly lead to weakness going forward.  This is another sign that it is probably not a good idea to chase this strength right now, but wait for some weakness which should come by next week. 11:45:20 AM