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.
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5 comments:
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.
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.
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.
I guess 2000 was the last bottom in this case.
I am now long ES, I bought at the close today. Swing trade, looking for a rally next week.
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