Stocks Hold Off Bad News | Stock Market Investing

Tuesday, May 13, 2008 | Home | Andy Mayo

Despite oil at another all-time high and the second month of declining retail sales, stocks closed mixed, with the major indexes basically unchanged.  When investors shrug off bad news, that's bullish.

But expect a pullback in stocks anyway.

The Volatility Index (VIX) is at its lowest level since the last October's high in stock prices.  And the Put/Call ratio, at .79, is the lowest it's been since a .82 reading last October.  These contrary indicators will not remain benign forever.  A reversal is in the cards.

The strength of the pullback will tell us whether the recent stock market rally is nothing more than a "bull trap" -- the Bear Market will continue -- or just a pause in a new Bull Market.

It would not surprise me, after the pull-back in stock prices, to see commodities pull back as well.  The head and shoulders pattern I pointed out in gold several weeks ago is apparently going to hold and that means lower gold prices.  If commodities follow suit then a rotation into stocks might set off a massive rally.   Here's the chart for the exchange-traded  gold bullion fund, GLD:

Chart courtesy of stockcharts.com.

 

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