Securities Research Services

Wednesday, June 27, 2007

Fear Levels Spiking

Turnaround Tuesday started off with a gap up, but the market has experienced a change of character over the past few days where instead of buying dips, sellers are jumping on the rallies. The day was negative and the S&P has now firmly broken its trend and rolled over below its 50-day average.

Does that mean we should short here? VIX levels, the indicator which measures fear, are spiking at levels not seen since the market rallied strongly out of the late February sell off. You want to short when the market is complacent, and buy when the market is running scared.

We don't recommend buying just yet. We are near a bottom, but unless you have very deep pockets and can afford to see prices get chewed up a bit more before they bounce, it is best to hold off and be patient.

Meanwhile, we scanned every market sector today and found one reliable trend out of more than 100 sectors. Electric utilities are in a firm downtrend and sellers show no sign of letting up anytime soon. The XLU has tried to bounce from its two year uptrend, but over the past two days sellers have been aggressively chopping off the tops. It looks like there will be continued pressure on interest rates, which in turn will place pressure on the utilities.

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