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.

5 comments:

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.