BigTrends

If you've been reading me for awhile you know that I always say there are a million reasons to sell but only ONE reason to buy.  When markets have shifted from the bull to a bear move the action is fast, and most recently hyperspeed.

The number on the 'flash crash' seen just two weeks ago was 1056 on the low, and here we are there again.  It's truly amazing the speed and the range for which these markets have fallen.  Choose your poison (reason) and it certainly seems valid:  lock in  gains from a year-long rally, troubles in euroland, diversification, re-assessing risk, high fear...we've spoken about all of these items and while the concerns have been there and are quite REAL, the selling didn't really start to snowball until April.

End of the move?  Doubtful, especially with talk about this being more than a correction.  That being the case a bear market would START at 980 on the SPX, 20% down from the high.  The VIX is clearly pushing the envelope of fear...but we all remember 2008 and the rise to 90, right? 

It's that time of year again when investors start adjusting the rear-view [investment] mirror as they look forward to a new year of money making trends. It's a good time to peruse the free analysis available, all-the-way from the top investment banks down to your local advisor, but be selective and filter out the noise because a lot can be misleading or incorrect.

That said, I found this handy little document called, Goldman Sachs Global Viewpoint - Top Trade Ideas for 2010, which covers Goldman's (GS) top 8 trade ideas for 2010. In my view, it's well worth the time to scroll through the short 7 page analysis, there are some ideas that I agree with - for example, Trade #2 is LONG RUSSIA Equities (RSX), this points towards the strength in BRIC countries (BTW, Goldman coined that acronym back in 2001), however, I would expect Brazil (EWZ) to be a larger beneficiary of BRIC investments next year. I'll be covering the details of Brazil in BigTrends 2010 Outlook due out next week (sign up for a free BigTrends Insider account to receive)

Tell us what you think about these trade ideas below, I'm especially interested in the 12 month volatility play...

After an unprecedented 3 months for the bulls ended last Friday (best 3 month since 1998)the market may be nearing a top...at least that's what the CBOE Volatility Index (VIX) is suggesting.  Thanks to Bill Luby over at vixandmore we've got an interesting analysis of Monday's ‘fear' conundrum.   In case you missed it, at one point on Monday the VIX was up 3.87% while the SPX was trading at +2.58%-as you know the VIX negatively correlated to the market meaning it generally moves in the opposite direction.  So, what does this mean. 

Luby, researched the charts and found similar instances, but not many.  In fact, only one other instance topped Monday's.  Towards the end of the Bear Market in 2002-03 on November 27, 2002 the VIX gained 4.93% on the same day that the SPX gained 2.80%.  What happened next?  According to Luby, this event occurred just two days prior to an short-term high which then led to a 17.3% drop leading to the final bottom process 3.5 months later.  Check out the chart below for visual candy...


image courtesy of vixandmore.blogspot.com

The fact is one time doesn't make it a science, or even a dependable pattern.  That said, this rare occurrence suggest that an under-current of fear lurks beneath (even on days like Monday's rally), which may lead to a final bottoming out prior to the fourth quarter 2009.  

The big question is if a correction is coming, or is it occurring.  Big difference, of course.  But have you notice the SPX is about 5% off the high reached about a week ago?  Not much noise over that of course...it's ONLY 5%.  I think within the confines of a bull market 5-10% corrections are regular and normal.  BUT this is not a bull market.  Within the confines of a bear market such as this one there is no limit down.  Sure, a higher low might inspire some confidence, but with the VIX hovering near monthly lows you can't tell me that the next drop of 5-10% will automatically be bought.  We're in a seasonally weak period which normally leads up to a summer rally.  Again, this is NOT a NORMAL market, so anything is fair game. 

Unusual strength for this market, which is still stuck in bear mode.  Yes, that's correct...still a BEAR MARKET.  It does appear that bulls are getting a bit tired here as the turnover for the last couple of days has been awful.  Remember, if they aren't buying, they'll be selling.  The VIX is not showing much fear here, smacking of complacency.  Is the good news already priced in?  Certainly the latest flu news was good enough reason for some selling, taking some positions off the table.  You can have a MILLION reasons to sell but there is only one reason to buy.  We'll watch the end of the month here to see if some rotation continues, or if the selling becomes more intense.  We have not seen more than a couple of days in a row of selling in quite some time.