Not enough pain has been dished out yet. 50ES points to go to the downside minimum over the next week or two. We may get a nice bounce here at these price levels, providing good entry for a reshort.
I'd question your point (2). Actually, I think most of the technical evidence right now is negative...therefore, probabilities and logic (if you're using technical evidence) would favor downside. What is "favorable" is all the myriad of oversold indicators. But let me just point out, that while these do work at times, you would have bought EVERY major downmove/crash, and sold every major advance if you used these overbought/oversold indicators as your tool. When I look at the SPX chart, what I see is a failed breakout, almost looking like a double top, a sharp move down on increasing volume, and a breakdown below the last lows. Nothing bullish technically about that at all. Will it bounce...hey, anything can happen. OldTrader
Mike, that's a ridiculous statement. 1458 held because the market closed. Futures over the next 15 minutes broke an additional 7 or 8 points. The break in futs was caused by the glut of unfilled sell orders (many stops) at the NYSE that hit on the closing bell. Thus the market will probably open below 1458 to-morrow in New York. (unless we see a rally in the DAX overnight) As far as the shorts "blowing it", LMAO. Anyone who's sold the Index(s) short the past month is in the money. Those shorts are in control. Hence a close on the low print of the move. Likewise anyone who bought cash at 4:00pm was immediately down half a percent by 4:15pm. I'll cover most of my puts on a 1531 print in SPX in anticipation of a shallow relief rally that could last for a few weeks and take SPX back to 1490 or so.
It's an interesting plot. i'm going to try and be less ascerbic than the "Whit", but look at it Michael! Do you realize it is only covering a period of bull markets? It may be that the past is prologue, but than again, it may not be. Do not bet the house on this chart.
One factor that is exacerbating the downturn is the margin debt. Its 68% over the reading from last year and up 32% from January's reading. Its also at record highs over 2000's reading. Im guessing that a big part of this selloff is not simply a credit crunch of Wall Street but a good ole fashioned margin call. In March of 2000, the margin reading was 78% over March of 1999's read. However, in the early 80s it was very common to have huge increases in year over year margin readings. What is interesting is when the market has turned down the last few years there was no sizable decrease in the use of margin. Even in February, when the market suddenly dropped, there was no sizable decrease in the readings. When going through the margin figures, I feel like I am reading Neke's trading journal. Folks are being very bold (or very wreckless) with their margin usage. I have confidence that my call will come true, but if it doesnt then I expect there to be a very big downfall or even a crash as folks keep selling to cover their margin call.
I went through the drops from 2004 and I have found that all of them on the $SPX have only been 6-8% which is none to exciting when you consider the 25% inflections during 2002 and the 48% advance during 2003. We are currently at about 6-7% under the 1555 high. I see the possible pivot points at the following prices: 6.5%= 1453 7.0%= 1446 7.5%= 1438 8.0%= 1430 8.5%= 1422 9.0%= 1415 9.5%= 1407 10.0%= 1399 If the market falls much lower then 8% then its doing something different that it has not done in 3 years. Thats when we should start being concerned and paniced. Im pretty confident though that this is just another summer panic. The VIX isnt high enough to promote a large move in the market, too many puts and shorts are in place throwing a bottom underneath, etc. Right now I see the bulk of the move is overwith and it might sell down to 1415 max (or another 3%). If there is a turnaround, then we will see a double bottom like we did in February/March 07 and summer of last year. Growth stocks will be the rule if and when that happens.
you have to consider that margin #s may be impacted by more widespread use of options trading by market participants. I'd imagine that synthetic option traders and/or even market makers can throw these numbers off dramatically. Remember a big hedge fund out there nowadays may want to carry the equivilent of 20k calls by owning 20k puts and 1m shares on margin. Do the math and add this up. In reality,with those puts, risk is controlled, but I'd imagine positions like this show on margin consumption radar. In the end, margin #s [when discounting synthetics/etc] might be much lower than historic. After all, they say retail isn't even participating in this market move.
Did anyone notice where the market pivoted today? It was at 1454 which is reflected below in my pivot points. This was not wizardry on my part, but simple common sense. In corrections of the recent path, the $SPX usually corrects down about 100 points give or take and usually somewhere between 6.5-8%. Now the next part of common sense is that every market correction has been followed by a double bottom. I dont think this time will be any different. This market strength will be sold and then a double bottom shall come. The possible scenarios I see at this point are: 1) Turn up from 1454 and then a sell-off to make a double-bottom around 1454. The selloff pivot would probably be either 1488 or 1504. Then a run for the right peak and then a short term target of 1572 and long term target price of 1655. OR 2) Turn up from 1454 and reach either 1488 or 1504. Then a selloff down to either 1387 (if the pivot is 1488) or 1403 (if the pivot is 1504). Then we'll take another look and revisit the thesis. OR 3) V-bottom and the short term target would be 1572 with the longer term target 1655. I see #2 and #3 as being unlikely. The final part of common sense is that the same computers that were program trading in the 2006 correction and the Feb 2007 correction at the same ones working this correction. I derived the above using that thesis and believing that this correction will be traded no differently then the ones of the recent past.
Austin, I don't appreciate your sarcasm. Mike has a turret... I sh*t you not. Apparently it's sentient and produces such winners as: Short RIMM from 165 Short AAPL from 122 Short BIDU from 180
Here is the advance/decline chart. Look at the numbers on the chart. Take a calculator and you will see that the difference between the numbers is 14. There were two in 2005 and one in 2006 and the difference each time was 14. We are right now at 14. Also notice that there was considerable chop on the A/D line before the corrections in 2005 and 2006. Whats unusual is the February correction did not have any significant chop or decline in the A/D.