Volitility

Market volatility of many kinds are a significant part of my analysis of a market that is putting in a significant top. The analyitic measure I use is 14-day average true range measured as a percent of the index (usually NASDAQ). The behavior of ATR% is that when moving from a bear market to a bull market ATR% moves lower and continues to move lower to a bottoming condition that typically stays for the entire bull market. ATR% starts stair stepping higher however when a major topping processing is underway. It does not do this for small or medium corrections. So months before the eventual top ATR% makes higher highs and higher lows like it started in January 2011.

Large one-day moves only come in bear markets and this is another more subjective measure of increased volatility. Any 4% one-day move in an index in either direction is likely under the influence of a bear market. Any 6% move most surely is as I have no counter examples. They can come in the initial move up off a bottom but before a follow-through day.

Finally, when I see market direction signals such as IBD's market calls rapidly switching direction I read this as another important indication of a major topping process. IBD market direction calls were noticeably unstable since January.

We may have made a short term bottom and investors might get excited on the long side. I will view this as an opportunity to lay out some short positions as they move into logical places of resistance. I don't short thinly traded stocks, minimum trading volume is one-million shares per day on average. Here are a few symbols that may be setting up:

CRUS could stall out at the 50-day or even 200-day
NOG, same as above
NBR, if it trades sideways for a while and fails to rally could be shorted if it makes a new low as the market stalls
LVS could stall here at the 50-day or possibly the 200 day just above
ARUN, same situation as CRUS but has more distance to cover to logical resistance
BIDU and EPD could be tried on the next failure of the 50-day
SNDK, OPEN, APKT, CTRP, CXO, PAY, FNSR same as CRUS
FTNT, LXK could stall at the 200-day
ITMN can be looked at like NBR above