Behavioral Update for Thursday 4/16/09

Just as we've predicted over the past couple of days, investors were willing to buy Tuesday's dip to make Wednesday and Thursday positive days.  On both days we've seen rallies at the close, and it wouldn't be surprising to see today's closing rally continue through tomorrow's open.  However, there are two things to look out for: 

1.) Citi's earnings report.  Citi reports before the market opens tomorrow, and who knows what they'll have to say.  Will they play around with their accounting like Goldman?  Or will they talk straight?  Also, what will their guidance be like?  This earnings report will be HUGELY significant and we'll have to see how it plays out.  Keep in mind that Google beat the street's estimates with their earnings this afternoon, so the NASDAQ may open slightly higher than the other indices if Citi doesn't beat.

2.) We're about to hit resistance!  The S&P is rallying up to resistance at 875, and if it continues to rally tomorrow then we just might see a test of that resistance.  Would strong Citi earnings push us through?  It's possible, especially given the positive news from Google's report.  Regardless, even if we pull back off of resistance, we know that investors are still willing to buy on dips because of the VIX:

The VIX continued to fall today, following its downward trendline and creating yet another multi-month low.  This is an extremely significant reading of investor confidence.  Traders are not anticipating major downturns in the market as they have been over the past several months, so they are more willing to buy on dips.  Also, they are less likely to "panic sell", which provides the market with some cushion on any pullback that we might experience.  If you missed the buying opportunity that we pointed out on Tuesday, then wait for another pullback.  We might catch another one off of resistance at 875.

Charts courtesy of StockCharts.com