Stocks: Is the Worst Over or is there Worse Yet to Come?

Chris Ciovacco of Ciovacco Capital Management always presents a well-reasoned approach to the market in his “short-takes” video. He emphasizes that we need to look at the preponderance of the evidence but even that doesn’t “guarantee” any future market action. All that we can do is see what has happened in the past and determine the probability that it will happen that way again. Even if 90% of the time some indicator resulted in a rise (or fall) in the market one time out of ten the opposite could still happen so we need to be prepared and listen to what the market is telling us.

In Yesterday’s video Chris Ciovacco looked at volatility (i.e. the VIX) and what it is telling us regarding the current state of the market. Interestingly, recent VIX activity was actually worse than in any other crash tracked since 1990 putting it on par with the 2008 crash and in terms of volatility it was actually worse than 2008.

Last week he said, “Stocks may not be out of the woods yet” and although we saw a massive 3-day rally this week, that is actually “par for the course” and to be expected at this point in the decline.

If we look at the chart below we can see that in October 2007 the NYSE peaked at 10,387 and it bottomed about a year and a half later at 4,203 with a total loss of 59.5%. The market this year, however, is even more volatile because the drop has occurred in a much shorter period. The NYSE peaked at 14,183 in January and has fallen 38.9% in only 2 months to a low of 8,665 in March.

In this week’s video, Chris analyzes the possibility of a further test of the bottom based on previous similar occurrences and he concludes, “If the market has already made a bottom there is still further evidence necessary to confirm that. Current evidence in hand does NOT point to a high probability that the bottom is already in place.” So caution is still advised although we could see a 10 or 20% rally from recent lows the probability of another test of those lows is very likely. In spite of any countertrend rally, that test could still result in lower lows much below the recent lows. Chris also looks at the probability that the FED stimulus will have the desired effect and how long it might take in order to create that effect based on recent experience with the 2008 crash. Watch the video below to see Chris’ full analysis.

Chris Ciovacco’s “short-takes” video.

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