I wrote yesterday about the current, relatively low level of the CBOE Volatility Index (VIX), comparing it to the 2002 -2003 triple-bottom. I concluded that low levels after a bear market could indicate that a capitulation had occurred.There was more evidence of that yesterday.
When the market opened sharply lower, the VIX opened very close to its intra-day high but sharply reversed and closed the day just .68 higher at 45.52. And the Dow and the S&P 500 traded fractionally lower.
This week should flush out most of any remaining bad earnings news with some very big names, such as Dow Chemical (NYSE: DOW), Disney (NYSE: DIS), Merck (NYSE: MRK) and Motorola (NYSE: MOT) reporting today.
Early reports indicate that Dow Chemical reported Q4 of 62 cents versus an expected 6 cents. Schering-Plough (NYSE: SGP) showed 39 cents versus a 30-cent estimate. Motorola missed estimates by a penny and suspended its dividend. Archer Daniels Midland (NYSE: ADM) quarterly report showed 91 cents versus an expected 68 cents and Avon Products (NYSE: AVP) reported 54 cents versus an expected 59 cents.
At the end of last week, about 40% of the S&P had reported, with earnings so far off 35% versus last year's Q4.
On Wednesday Allegan (NYSE: AGN), Clorox (NYSE: CLX), ITT Corp. (NYSE: ITT), Kraft (NYSE: KFT), Prudential (NYSE: PRU) and Visa (NYSE: V) report earnings, and on it goes with major economic reports almost every day.
The point is this: If the market can maintain the very tenacious support levels of the major indices through this week, then I will say that the chances of having reached a final significant bottom are very high.
Until then, we must be very flexible since both longs and shorts are now operating on a high-risk playing field.
One long that looks good right now is my trade of the day, Deere & Co. (NYSE:DE).
Sam Collins is a contributor to OptionsZone.com.
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