The Cardinal Moon of January 22, 2008
The Panic to Safety of January 2008
The 13 month PEI cycle low coupled with a possible Cardinal Panic Moon on January 22, 2008, gave us a perfect storm of credit crisis and rogue trading that culminated with the largest emergency rate cut ever. The effectiveness of both the PEI (Princeton Economic Model) and the Cardinal Moon model were validated by this advance warning of this mini-Panic in global financial markets.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Some global Equities also felt this mini-Panic
The Nikkei was the most affected by this mini-Panic, and the low also occured near the 6 month cycle, which almost always produces important turns in the Nikkei. The US markets were also affected negatively and this low is coming very close to the 8 month cycle high due in early March 08, which suggests the recovery rally from the January 22, 08 low could continue to be more powerful than expected.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
Breadth should warn us of overbought conditions
With the sharp recovery of Equities over the last week or more, it becomes tempting to take profits assuming a large correction, maybe even a re-test of the lows is around the corner, but both the High/Low ratios and the Volatlity indices like the VIX are suggesting more upside to come. The High/Low ratios have turned up sharply and are still short of levels seen in the last correction of December 07, while the VIX is turning down from atriple top and has yet to even reach its uptrend support line. At this point, even though we have risen quite far and fast, we are still not overbought in many indicators, and still oversold in many others.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com
This Panic low is unlikely to be the last in 2008
While we have seen a few selling spikes in the Put/Call ratio with this January 08 decline, we have not seen extreme bearishness like we saw in the first subprime sell-off of February 07. In fact except for the latest sell-off, each successive decline got larger and the Put/Call made higher lows suggesting less fear being generated and complacency setting in. This behavior raises the odds of another much larger decline into the next 8 month cycle low of June 08, to finally get a series of selling spikes in the Put/Call to at least match the initial February 07 period.
Charts courtesy of StockCharts.com
Charts courtesy of StockCharts.com