Friday, July 18, 2014

Due for a Whacking

Yesterday seemed like the perfect storm for bears, but the market was due for a beating.  It was just waiting to grasp at something tangible, even though it doesn't have any fundamental meaning.  No, the Russians shooting down a commercial plane doesn't matter.  You think US and Europe are going to war over this?  In fact, it probably slows down Putin's push in Ukraine.  And Israel and Gaza don't matter.  Geopolitics doesn't matter, unless you stop oil supplies.  That's not gonna happen.  This market wasn't going up because of peace.

That being said, this market is just too overstretched, with too many bulls, for us to just shrug off this one day wonder.  It is actually two separate one day wonders.  Last week it was Portugal, also happening on a Thursday.  Eventually these one day wonders add up.  They will wear out the bulls and you will no longer have bulls acting with the FOMO (fear of missing out).  This is looking more like early January, increasing intraday volatility, chopping for a couple of weeks, and then a deeper selloff.

My buy zone of ES 1943-1944 was hit overnight and we've bounced 15 points from that zone.  At current levels, ES 1956, I see little edge either way.  If my forecast turns out to be true, we should be looking at a pullback down to ES 1880, which is the area of the breakout in May.  On the way down, we should see some good trading opportunities.  We could chop around for another week or two, or just start heading down next week.  Either way, I am short term bearish, but neutral for today.  I plan on expressing my bearish view with a combination of short stocks and long bonds.


MM111 said...

Should of stayed long from overnight. Once again we are nearly back at highs. Peace!

Market Owl said...

Voracious dip buying surpassed expectations. They make BTFD too easy! I am still in the chop till you drop camp. This is just more chop.

MM111 said...

The VIX is only down to 12. I suspect they will blast it down to 10 or lower so new highs in s&p are coming.