In the Dugout: Will Friday the 13th Ease the Fear

There are two main things that move the market: fear and greed. Isn't it appropriate then that the day before Friday the 13th, we are witnessing a great deal of fear in the market. One measure of fear is the reading on the CBOE Market Volatility Index, called the VIX. As the VIX rises in value, it shows more and more fear. Look at the following chart to see how the VIX has spiked high in the last few days.

"Chart generated by RavenQuote charting software. Copyright (C) 2000 #"

Even though the VIX has definitely moved above its normal range, it isn't new territory. Unfortunately, fear can increase before it reaches a point that signals a market bottom.

Interestingly, October is often a month that forms a bottom for the markets before the normally strong year-end move to the upside. In addition, international conflicts often precede a bottom in the markets. A lot of the drop in the markets today came from the uncertainty in the Middle East and the resulting spike in oil prices. We are nearing extremely strong support levels for both the Dow, at 10,000, and the NASDAQ at 3,000.

So, will Friday the 13th bring further fear into the market? Until the crisis in the Middle East is resolved, we will likely see the VIX continue higher and the markets continue lower. Though the markets lost over 3 percent in value today on strong volume, there were not any signs of capitulation. What I am looking for is a large move down on very strong volume, with a subsequent recover with even strong volume. A likely scenario would be a large gap down and subsequent recovery. Look at the following chart with prior examples.

"Chart generated by RavenQuote charting software. Copyright (C) 2000 #"

Therefore, though a bottom is likely to occur within the month of October, I wouldn't be too quick to pull the long trigger. Uncertainty breeds fear in the markets and who would be brave enough to predict the end of fear on Friday the 13th.

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