[private][private]UPDATE 3/16/11 5:46pm: Well the SPX tested the 1250 level, which as stated below was a key support level and approximately the index’s break-even point on the year. Again we had a fairly orderly sell off other than a few tech standouts on the downside like AAPL (-4.5%), IBM (~4%), TXN (-3.5%) and Q3/14/1COM (-4.5%)…..This action in technology is notable because these 4 stock were all leaders in the market run up since Sept and are decent size S&P 500 components……..
–As for the rest of this week I would expect the SPX to break 1250 and depending upon the news out of Japan test the next support level of 1200 (down about 4% from current levels)….Of specific interest to me is action in names like AAPL, today’s sell off on a downgrade from an analyst (from of all places JMP Securities) sending the stock down 4.5% seems like little more than excuse to sell a winner……if you start to see some big gainers, but also more speculative names like NFLX, PCLN, CRM follow suit, then watch out below because that will indicate investors need to raise cash and reduce risk from anywhere they can do it and likely cause the capitulation that the market will need to bottom.
Complicated=UGLY….meaning we are likely to gap right through it and at that point all bets are off……My best guess is that we have another couple down 2% days that kind of gets us there, but i wouldn’t rule out a little flash crash of sorts. The markets in my opinion are not adequately pricing in what seems to me to be enormous amount of risks, both near and longer term.
Even though the SPX is down less than 4% from last months multi-year highs, the volatility bands have clearly widened over the last few weeks , and while the sell-offs have been very orderly, this situation is likely to be resolved in one way, a swift slightly scary move lower, that yes demonstrates some panic…..we have yet to have that in this corrective phase…..but it will come.
Chart below of the SPX showing the recent break below 1300, below and important support level, through it’s 50 day moving avg and a massive trend line from the start of the monster rally Sept 1.[caption id="attachment_471" align="aligncenter" width="390" caption="SPX 1 Yr Chart Bloomberg Chart"][/caption]
Be Defensive and stay short, but when the market bottoms it will likely to do it quickly in some form of intra-day reversal, not exactly the first one you see, but one from a very oversold position (which we are not at yet). When that happens get ready to move your feet and cover some shorts and have a list of names that you either want to add to or establish new positions in….[/private][/private]