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Up in the morning down in the afternoon and the VIX, implied volatility
index for the OEX remains in dead neutral on a 14 day cycle basis. Twenty
day periods have been popularized in texts and TV media, however, in
reality the market has a variable length cycle that averages around 14 to
18 days. As of the close of 7/28 it is measured as 14 days using a maximum
entropy spectral analysis approach. The attached chart of the Modified
Volatility index was created with the 14 day period. What it shows is the
VIX sitting on its 14 day average with very wide +2,-2 standard deviation
bands. This suggests that when the VIX comes off the moving average there
could be a rather powerful move. Next question is which direction. Taking
a look at the Modified Volatility Index in the lower plot we see that it
says the market is slightly on the oversold side of neutral. This is hard
to believe when there has been such a strong up move recently.
Never-the-less this state is confirmed by breadth and issue oscillators
also on the oversold side of neutral. Some selling did come in late in the
day on Monday confirmed by an uptick in the VIX Zone score which is usually
a sell signal. But the uptick coming in the neutral zone and during the
end of month it shouldn't be taken too seriously. End of month positive
seasonality is commonly accepted as starting on the last trading day of the
month, however, an examination of end of month periods shows that buying
sometimes begins within three trading days of the end of the month. There
could be followthrough selling on Tuesday morning followed by a rising
seasonal tide from the minor oversold conditions layed out above.
Attachment Converted: "c:\eudora\attach\MVI 7-28.gif"
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