Friday, January 30, 2015

Hoping for a Flush

We are near the end of this pullback.  It has been exactly 1 month since we hit the all time highs in December in SPX, and we've gone on a little roller coaster ride lower for the past month.  During that time period, sentiment has gotten more and more cautious.  I am reluctant to say bearish because I don't think too many are looking for a huge selloff, just a little more correction.  The market has refused to make lower lows during this time period, despite the growing caution and the stubbornly high put-call ratios.

It leads me to conclude that the selloff is pretty much at the end.  Thus, I am hoping to buy a weak close today, which seems likely, considering that we have a big gap down, worries about Greece and even a little Russia-Ukraine geopolitics thrown in there.  I could be wrong if we are entering a bear market.  There is always that chance, but in the case that we're not immediately entering a bear market, this is a time to buy for another leg higher.  I remain sanguine because of the ECB QE, which will keep the European scarecrows on the sidelines and away from the sell side for a few weeks.  Another is that China is on the easing road and that should be sufficient to keep asset prices firm there.  The only worry is weakness in US from a strong dollar, and the saturation of long term optimism about US equities, but I am sticking to the belief that when crude oil stabilizes, which it is doing now, that should bring the cautious bulls back in the equity market.

Looking for a little bounce off this gap down in the morning, and then a selloff in earnest from European close to the US close.


MM111 said...

What levels do you think we could go down to and since we have now gone down to the lows 4 times that we could crash on through and keep on going down.

Market Owl said...

I don't think we'll crash through the lows that we've made this month. The levels that have very firm support are SPX 2000, 1988, and if we crack through 1988, I look for the December lows at 1972 to be next line of support.

If this is still a bull market, as I am assuming, then we shouldn't go below 1988. If we have transformed into a bear market already, which I give less than 15% probability, then we will go to 1972, stop, pause and then bust through all the way down to 1900, and then 1880 in a waterfall decline.

Market Owl said...

By the way, you can finish a pullback through time rather than price. There have been many pullbacks in the past that have lasted 4 weeks that were relatively shallow. Many of them happened in 1999 and 2000.

MM111 said...

I guess 2000 was the last bottom in this case.

Market Owl said...

I am now long ES, I bought at the close today. Swing trade, looking for a rally next week.