Back on August 11th, we published our blog suggesting the market swing low was in and that a multi-week rally was likely. 1 month later, the S&P500 has now crested the 2000 level and has begun a short-term consolidation. We are now trying to discover if there is increasing risk of a market reversal and selloff or if the market is just taking a break prior to continuing to advance.
Markets are scary again. The Kumbaya Market has come and gone, but is it time to run for the hills? In spite of the emotional intensity that always accompanies market corrections, the price action does not indicate anything different than we have seen in the past market pullbacks. So is this time different? Let’s make some technical observations.
First off, here is a chart of the number of stocks on the NYSE that are trading below their 50 day moving averages. Notice that selling was intense enough to force the % of stocks to under 30% and that the level is in line with the selloffs of September 2013 and February 2014, each of which resulted in a solid “buy on dip” opportunity.
Topics: Crash Alert
|Market conditions are very vulnerable and only need a small catalyst, like a spark needed to idle sitting fuel, to unleash the animal spirits amongst investors. Consider a “Crash Alert” warning to be similar to the “SEVERE” red alert issued by U.S. Homeland Security to warn of a heightened risk level of a terrorist attack. It does not guarantee an attack, nor suggest that conditions could not deescalate to the “ELEVATED” yellow alert in subsequent weeks without incident. It simply means, pay attention, take precautions and avoid high risk areas. That is all we can ask of our readers to do the same with their investment accounts.|
Goldman Sachs is fast tracking the Twitter IPO into the market. Is Goldman signalling the top of the market? It was originally thought that the initial public offering of Twitter was going to happen sometime early next year, yet now there is talk that it will occur before the turkey is on the table for the U.S. Thanksgiving.
I have been asked numerous times if the debt ceiling issue was not going to be the catalyst to spur on a market correction. While the debt ceiling issue in 2011 in fact was the headline catalyst that drove the crash, we are reluctant to believe that lightning will strike twice in the same spot. Market corrections and crashes tend to be driven by investor uncertainty and the fear of the unknown. In this case, investors have now seen this and can quantify its impact, so it has a diminished risk of being the catalyst for the decline.
Yesterday the market had one of its largest down days of the year. While intense, it did not bring capitulation that normally accompanies a short term low. The risk of another big down day is high. We could see a rapid drop to 1610.00 where the market will make a critical decision. While the technical measurement targets 1610.00 on the downside where a short term bottom can occur, but if that level is broken, the market can spiral down to 1500.00-1550.00 in a crash like move lower.
CRASH ALERT: Crash alerts do not guarantee a crash but simply observe that we are in a market state where all the criteria for a crash are there. To review the criteria, click here.
CRASH ALERT: Crash alerts do not guarantee a crash but simply observe that we are in a market state where all the criteria for a crash are there. The checklist was posted in last week’s blog, click to read.
CRASH ALERT: Crash alerts do not guarantee a crash but simply observe that we are in a market state where all the criteria for a crash are there. The checklist was posted in yesterday’s blog, click to read.