S&P 500 - May 20, 2010

I usually say: The Doors of Crowded Places are Narrow & Few.

But I may have to revise my own saying. These days, it seems like crowded places have no doors – only a single small windows opening to a bottomless gorge beneath – and they all jump!

Fat fingers or not, the way market players are vomiting their positions, soon they all may be as bulimic as 2008.

As I said in a recent post

“Pass on the popcorn. This movie I have not seen in my life time!!”

It is different than 2008 (and other instances of my lifetime) in the sense that back then we had a bunch of bankers deep in doo-doo, and they finally got to dump their crap (or some of it) on public balance sheets (that’s you and me). This time, it is the public balance sheets that seem to be in doo-doo.

So what do we do?

How about accounting Greek paper marked-to-model? Will that work?

Maybe not – Greece has been marking itself to model for years now.

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I do not get tired of expressing the obvious, especially since not many others seem to care to mention it.

There is no money. Bernanke has stopped (allegedly) printing it. No money, no honey!

What about the 1 trillion announced two weekends ago? Good question! What the hell happened to that? Did it all end up in the bond market playing the spread somewhere?

With Europeans full of promise and devoid of actions, was there any Trillion dollar to begin with? Is it taking its time to reach the global tapes of global markets? Was it too little too late?

I have no idea!

All I know is when masses gallop in one direction, one either rides on their shoulders or stands aside.

Let’s look at some charts!


Weekly price is below all three MAs that I usually use. It was stopped today by the 1070 half-range area. This decline/correction looks far more serious than Feb 10, and July 09. More points dropped. RSI seems like double dipping. Moving averages violated.

Below the 1060-1070 area (that includes Feb low of 1066, a top from 2004 and a bottom from 2005) and the blue channel line, I don’t have a lot of technical support until 1022. On the other hand, resistance levels are piling up. That means that there will likely be herds and herds of shell shocked positions that would jump at any chance to get out even or at minimal loss. So, bulls need to do something as soon as, like, yesterday, to stop the hemorrhage. If they do, it can all be seen as a test of solid support and they can use that to chase the bears into rallies.

But, bidding the tape takes money.

This is a daily chart


Ugly candles all over the place!

Today was a high volume dump with extremely bad breadth. Index stopped around support of 1060-170 area. As things stand right now, it just looks like a falling knife. Index closed below its 200MA/233EMA

Daily breadth was absolute murder


Down volume to up volume was 73 to 1. That’s the VOW measure. The somewhat subtle measure is the net new highs that seems to have become a fixture of below zero area

Arms index is getting more and more oversold without really breathing any sigh of relief. That tells you how desperate people are to get out of whatever it is they are stuck with


This has the potential of snapping back, if for no other reason, out of exhaustion, and cream a huge crowd of late shorts. The when of it is the multi-billion dollar question. I personally would look into ways of reducing/hedging/insuring shorts around here. I would also look for high volume buying activity late in the afternoons, especially in a bad breadth day.

McClellan Oscillator is digging uncharted depths


By every internal measure that I use, this is a serious correction, more serious than prior corrections since March 2009.


Are we in a bear market now? Technically, I don’t have anything that could help me argue a bear market at this point. Some measures are close to suggesting that possibility but they are not there yet.

This is a 60-min chart


Don’t get caught in the minutiae of intraday waves. Pay more attention to price posture, MAs, and important levels. Again, I personally would look into ways of reducing/hedging/insuring shorts around here. As an example, buying a call against a nicely profitable short position may reduce the profit somewhat but it guarantees profit and leaves the door open for further gains if market drops and drops.
Another way may be to set multiple levels (and adjust them) like I did with long positions in the previous uptrend and let the market stop them. That may be a bit trickier in downtrends because short squeezes can be ferocious.

Bulls lost 1090, and now that is the resistance that they should overcome as a first step.

OEW pivot support is at 1058 and 1041. Resistance at 1090 and 1107

Long term trend is up. Mid-term trend is down. Short term trend is down (a move above 1100 may change that)

Tomorrow is the OpEx day.

Trade Safely!