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  Weekend Stock Market Analysis

(9/25/04)

For those that read my column each week the selling pressure that developed in the market shouldn't have been a surprise to anyone.  As I have stated over the past two weeks when the Volatility Index that tracks the Nasdaq 100 (VXN) and S&P 500 (VIX) drops to very low levels that is a signal of too much complacency in the market which usually leads to some type of correction/pullback.  

As shown below during the past year when the VXN has dropped to 20 or below (points A) this has led to an eventual top followed by a correction (points B to C).

Meanwhile the rising price of Crude Oil is probably one of the culprits for the increasing selling pressure of late as Crude Oil is nearing its August high near $50.  The question is at this point what happens once the price of Crude Oil reaches its August high?   If the price of Crude Oil surges past $50 this will likely spell big trouble for the market as during the past several months Crude Oil and the Dow have been going in opposite directions.  Notice below when the price of Crude Oil rises the Dow corrects (points D to E) and when the price of Crude Oil drops the Dow rallies (points E to D).   

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