It appears that the day we have been waiting patiently for so long is finally here. Not that this event is going to be a single day drop by any means. Rather, my implication is that the long awaited wave 3 of 3 is finally underway.
Though it is great to be watching the futures ticking down somewhere between 1% and 1.5% while I type, when the $VIX closed up 23%. Speaking of the $VIX, it appears people are beginning to get scared. After two failed confirmed sell signals as we expect in a bear market, we push outside yet again. Coincidentally, we also crossed the 50% line on by channel, signifying that the market has indeed entered an extreme selling phase. Target resistance is around 37 unless we have a triangle break out in which we would be looking for about 41 for a target.
What is funny, (in a sick, sadistic way) is that all of the major institutions that are or have gone under, and well-established, long lived companies. I mean BSC was over 100, LEH is 158 years old, MER is 90+, FNM was created in the 1930’s making it at least 70. Now I have never witnessed an economic depression first hand (except the events of the past 2 years), but MY opinion is that when these elders of our financial markets are dropping off like flies, we have gotten ourselves into quite a mess. What really sucks is that I can no longer trade these companies. Back 6-9 months ago, ALL I was trading was MER, LEH, BSC, FNM, and FRE. Now, all of these companies are going under, which leaves me with what, C and XL to have fun with in the financial sector.
Okay. On to the markets. They remain in an interesting situation, given tomorrow’s fed meeting. I expect some decent resistance around our July and/or March lows, which are spitting distance from where we stand. Here is the $COMPQ. Not much new to report aside from the 3.6% drop.
The $SPX needs to be talked about tonight, as it has already breached all prior lows our our decline. With an almost 5% drop today, we could say that it is our leader at the moment. And we know that when investors move to riskier stocks (i.e. TECH) a market bottom is not near. We are lower than we have been in 3 years on the $SPX, and I see a small resistance cluster around 1180, but have more evidence of a bounce towards 1170-1165. Those target ranges hardly suggest the bottom to wave (iii) (as labeled on our chart), merely the next logical bump in the road. Remember that a wave 3 is unfolding at FIVE degrees of trend right now. That is huge!! Which brings me to my next point.
Will cutting another .50 basis points really make YOU feel better? Does that bandage fix your severed leg? So the question is how the market will react. The fed will cause market activity to lull into 2:15 EDT, and I wouldn’t be surprised to see us hit these lows early and churn around them until then. I am fond of saying that the fed calls tops not bottoms, and I believe that will be the case.
There is really not much else to post despite our 500 point drop. All of our indicators are supporting the bearish case, and we have little reason to believe that Fed action will do any more than forestall the inevitable…if that.
We really hope that you have been playing and getting good entries on our recommended stocks. There may not be a whole lot of opportunities to reload on positions after the Fed and expiry this week, so make sure you do reload diligently. I am happy the day went as it did, and I can sleep peacefully knowing that we are truly in wave 3 now.