Tuesday, October 14, 2014


This market is drawing blood.  You are not getting the little moves that were painless before.  Now you are taking out big chunks in a matter of an hour.  These aren't paper cuts.  They are shotgun wounds to the leg, forearm, and if we break 1850, to the heart.  Yesterday, we dropped 20 points in a hour.  Same thing happened on Friday.  You are taking out some aggressive longs in the process.  This is turning into a different beast.  It must be respected.  For the next few days, it will not be your good old BTFD market.  It will be a hyper version of a STFR market, with bounces dying out quickly.

After looking at the price action, reading the news, feeling the market, we need more downside action before we can get a sustained bounce.  The selling is so sustained and pernicious that you have to wonder how this could happen just because of Ebola.  Of course, that is a red herring.  A market that goes down on no significant news is a market that is very weak.

I am not calling for an end to the bull market.  I don't believe QE has as much of an effect on the stock market anymore.  It is a convenient excuse for the hard to explain strength of the market since 2009.  When you take out supply like corporations have done for the last several years, with M&A thrown in, you have a shortage of stocks relative to the demand.

But this pullback cycle looks like a 22 day whopper, not the 13 day one that is more common.  You don't get 3 cascade down days without some serious motivated sellers.  A bit panicky, but there is a lot behind this down move.  We are on day 17 of the pullback, so I expect this to be over in a week.  However, during the next few days, with options expiration and the delta hedging selling forces at work as the market heads lower, you can get a move down to monster support at SPX 1850.  That is just gigantic support that the bulls will fight to the death to hold.  I expect it to.

I sold ES on the pop in premarket, looking to get back in lower.  Need to microtrade this beast to stay alive on the long side.  Once we get to close to ES 1850, no more microtrading, I will be playing long for keeps and looking for the big move back higher.

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