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Jittery, and nearing "panic" mode

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The major U.S. indexes remain pegged near their lows of the session with the Dow Industrials (INDU) 7,434 -1.18% lower by 89 points, while the broader S&P 500 Index (SPX.X) 790 --1.31% sheds 10 points as it tries to hold its WEEKLY S2 level of our pivot matrix, and the NASDAQ-100 Index (NDX.X) 948 -1.03% slips 10- points, but holds its DAILY S2 level of support.

Sector action is broadly negative today, with an earnings warning from networking equipment maker Black Box (NASDAQ:BBOX) $28.02 -28.46 having the Networking Index (NWX.X) 131 -4.42% leading today's sector loser list.

Cisco Systems (CSCO) - Daily Interval

In today's market monitor at OptionInvestor.com, I commented on the "triple-bottom" sell signal that CSCO generated on its point and figure chart, which has Professor Davis' study in play that is profitable for a bearish trade 93.5% of the time, for an average decline of 23% in 3.4 months. From $12.50, this would represent a decline to approximately $9.62. We also made note that today's "sell signal" generates an initial bearish vertical count of $10.

The bar chart of CSCO also hints at $10, with a head/shoulder top formation, with descending neckline of $12.75, having a bearish objective of $10.00.

As mentioned in yesterday's 01:00 update, a recent warning from European distributor of networking equipment Dimensional Data, and last night's earnings warning from Black Box, looks to have networking equipment giant Cisco (CSCO) vulnerable. I've profiled the July $12.50 puts as a way for traders to limit risk in a bearish trade, as our major market bullish % charts are at more longer-term "oversold" levels. However, monthly reductions that we have noted in corporate and telecom capex budgets, along with warnings from Dimensional Data and Black Box, provide not only some technical observations for weakness in CSCO, but fundamental as well.

As I discuss the more "oversold" levels of bullish %, today's action from the Market Volatility Index (VIX.X), which tends to rise as investors begin gobbling up put options at a more rapid pace, has the VIX.X moving above 40.00, which is a level I consider to now be moving from the "jittery" phase to a more "panic" phase.

Market Volatility Index (VIX.X) - Weekly bar chart

I like to keep a retracement bracket that is "fitted" on the VIX.X from 16.78-40.00, which historically has tended to give me a "range" of observation that now has the VIX moving above my "jittery" zone of 35.58-40 and rising more toward levels where we might expect some type of "panic" to ensue in coming weeks. One might now tie a "panic" level with some type of geopolitical event that may be on the horizon.

As such, with the lower levels of bullish %, combined with the higher VIX.X, it becomes apparent that the MARKET is nearing a more panic mode. Historically, this has NOT been a time to now begin overly buying put options in an aggressive manor, nor putting on multiple bearish trades in stocks.

Traders should be carefully selecting any bearish trades by looking for stocks that are breaking key levels of support, where there is PLENTY of room to downside targets, which can be established from bar chart patterns or point and figure probability studies or bearish vertical counts.

Jeff Bailey

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