NOT TIME TO PANIC...YET

The volatility index (VIX) closed today at 45.54 with an intraday high of 46.28. It gapped up at the open as the market sold off hard. This definitely signaled some panic in the move down this morning. That is the bad news (unless you are very bearish on the market...if so, just invert these remarks). The good news is that the volume behind today's move was about average, indicating that the move might not be as significant as it appears. These two indicators might appear to be contradicting each other (a spike up in the VIX on average volume). A closer look at the VIX shows that today's gap up moved the VIX to its 50 day moving average. This 50 day moving average could act as resistance and the VIX could start to move back down (which would be bullish). I told you to watch the financials as they seem to be leading this market. Almost all the financial stocks sold off today, but on average to less than average volume. They all appear to be completing possible bullish ABC patterns on their intraday charts. There has been a lot of recent talk about the huge short interest on some of these financial stocks. If these stocks rally again, they could be propelled even higher by all these short positions being covered at the same time. This is referred to as a "short squeeze". On the other hand, there is still some room for them to fall. If the short sellers are successful, they might be able to drive down the financial stocks enough to retest or even break their recent lows. There are key support areas around 7,450 on the DOW and 770 on the S&P 500. If we are bullish in the market, we want these support areas to hold. For bullish trades, there is no reason to guess or hurry. Wait for the market to start to recover. Remember the old Wall Street saying, "You never want to catch a falling knife". Don't get caught up so much in the point move up or even the percentage move. We want to see higher and increasing volume on any market rally. We also want to pay attention to any increasing volume if the market continues to sell off tomorrow. If these support levels don't hold, look for bearish trades on the DIA, SPY or any stock in a clear downtrend. I still like HANS for a possible bullish move but any new trades should wait for it to get back above the 3/26/09 high. I also still like AAPL, but wait to see if it closes up tomorrow (pay attention to the last 15 minutes of the market if you can). It is sitting on a great support area, but it needs some confirmation. I also like the bullish patterns on NFLX and AMZN. Hold off on the Energy stocks. Their recent breakout now appears to be a false breakout and many of these stocks have moved back into their sideways channels.