Interest Rate Roundup

Monday, April 07, 2008

What are technicals telling us about the credit crunch?

Is the credit crisis over? No one knows the answer for sure. But for those of us who like to follow technical indicators, in addition to fundamental ones, we're approaching/testing some key levels that could tell us which way the wind is blowing.

Take the CBOE SPX Volatility Index, or VIX. It's testing an uptrend line that dates back to mid-May. Since the VIX is a good gauge of market "fear," this indicates that investors are getting more sanguine/complacent about risk. See the chart above.

Meanwhile, the S&P futures are closing in on the 1,390 level -- a key area of chart resistance. And long bond futures are down almost a point and a half in price ... and testing an uptrend line that dates back to June 2007. If all of these areas of support/resistance give way, you could interpret that as a technical signal that the worst of the credit market problems are behind us (at least for a while).

The VIX tested, but held its uptrend. Similarly, long bond futures rallied back to a decline of -25/32, meaning the uptrend remains intact. S&P futures finished the day with modest gains.


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