Is The Market Experiencing A Slow Motion Crash?
Courtesy of Tyler Durden
Some market observations from Minyanville:
Market Now Experiencing a Slow Motion Crash
On July 1 when the market was down over 300 points and it felt like the world was just about to end, we put out the following alert: Taking Profits in Inverse ETF Positions in which we closed our inverse ETF positions. The Dow Jones Industrial Average has rallied almost 600 points in just seven trading days since that call. The inverse ETFs that we covered for substantial profits had a powerful reversal just as warned. In that alert we also wrote the following:
“The market is getting very oversold and the risk is high being long or short right here. On 5/6/10 the market looked like it was ready to collapse. We then had a powerful rally off the “Flash Crash” lows. The markets then made a new low on 5/25/10 before staging another rally. On 6/8/10 the market made another new low and looked like it was about to collapse but once again staged a powerful rally. Each time the market looked like it was about to fall off a cliff, it had some outside force help it rally.”
Well, that big rally is happening now because once again a powerful “outside force” intervened to stop prices from collapsing. Folks, these aren’t natural, free-flowing markets we’re dealing with here. If they were, then the market would more than likely have crashed to the July 2009 lows by now. As much as “they” may try to prevent a collapse to the July or March 2009 lows, “they” will more than likely fail to prevent such a crash from happening. In fact, a crash is now happening but in very slow motion. How do we know? Because the 50-day moving average has pierced the 200 DMA and the dreaded black cross is now taking place on the DJIA and the S&P 500. It will soon take place on the NASDAQ and the Russell 2000. We mentioned in a recent note that often times during the “death cross” a final rally takes place. That rally happens because prices have already fallen hard and are often due for an oversold bounce. We believe this is that final rally before we see waves of selling and total capitulation take place. When you see the VIX cross 50 then you’ll know that we’ve just entered the capitulation phase. If we’re correct, and we hope we’re not, then we may see intense levels of fear like that of 1929, 1987, and 2008.
We also wrote the following in that recent July 1 cover your shorts piece: “However, the bulls are not quite dead yet. Their spirits are still high and there is hope in the air from what we can tell watching the Bull channel on TV. The bottom line is to get ready to short the next rally which I’m hopeful will take us to 10,100 to 10,300 on the DJIA, 1060 to 1080 on the S&P 500, and 2100-2200 on NASDAQ Composite.” The NASDAQ closed at 2196, the DJIA closed at 10,298 and the S&P 500 closed at 1077 so all of my upside targets have been met.”
So what should we expect next? Our best guess is that we either saw the highs on Friday or we will sometime early this week. We say this because prices are rising right into the eye of this market storm. The “eye of the storm” is the rapidly declining 50 DMA, the 200-day moving average ceiling, the downtrend line from our April 30 “sell call” (subscription required) and the 6/21 area of resistance. If the bulls, with the helping hand of the plunge protection team, can get through all of that overhead resistance, then you’ll know that this storm has safely passed. Only then will we consider entering any new ETF positions in the program. Until then, we’re staying 100% cash to avoid any damage from this phase of the global financial hurricane but will be ready to alert you once we get a fresh, tradable signal.
h/t CB
Email This Post
Facebook
Twitter
LinkedIn
del.icio.us
Digg