ladder removal thursday, page-17

my current view, fwiw, is that we're seeing a bottoming process .. the market breadth indicators in usa are the main factor in forming my view ... against that, we haven't yet seen a spike high in the vix, say up around 45, which would signal capitulation .. the last time there was such a spike was around aug-oct 2002 .. bottoms can also take quite a while to form, and a spike in the vix doesn't necessarily mean the price low is in.. it just means that the worst of the volatility is over, stability will improve from there, and even if it isn't THE low prices will be higher within six months or so.

The evidence to support the notion that capitulation is a necessary condition for a price low is also pretty scanty. I've forgotten the exact figures, but bottoms form without capitulation more often than not. It would just be nice to have such a clear signal in uncertain times, which might be why theres so much chatter about it. Absent a vix spike, there may be other vix signals suggesting a bottom is nearby. For example, slow sto on the monthly vix suggests that fear is now at levels that suggest a bottom, although there is no vix bearish crossover as yet.

Onother way of looking at the whole picture, which included the inflation adjusted price of stocks, is to note that in gold equivelants (asuming gold is a measure of inflation) spx has declined arpund 80% from the top. Even though there aren't any indicators hanging off it, that suggests to me that the selloff in stocks has been overdone. Either stocks will rise or gold will come off, or both I guess.

summary: market breadth indicators are suggesting accumulation and a possible bottom zone, and vix is also saying a bottom is possible around these price levels. Neither indicator is saying definitively that we've seen THE low in price. the price of stocks measured in gold equivelants say that stocks have declined about 80% already which seems a tad oversold (or gold is overbought)