Friday, February 9, 2018

Too Eager

Well, that was a good idea, buying the dip, it was just a few hours too early!  I overestimated the support levels at 2640, and should have expected a pre-weekend risk off move to start a day early.  No one wants to hold too much risk over the weekend, as the market is plummeting.  So I should have anticipated the selling begets selling theme into the close when S&P continued making lower lows and lower highs, below 2640. 

In this kind of manic market, being too eager to buy or sell will cost you a bunch of points, as I am seeing overshoots that are August 2011, August 2015 like. 

Yesterday's action does confirm that you will have a lot of resistance in the 2700-2720 area.  That is a dead body zone, where eager beaver buyers who didn't want to miss a bottom, jumped in too early, and paid the price the last 2 days.  Remember, because we sold off hard yesterday, we are near strong support levels around 2580-2600, so its going to take some dedicated selling to take this down even more after yesterday's pounding. 

Since I am already in a long position, I don't want to add more here.  I do expect a bounce back next week, but will it be from 2580, or from 2540?  I would be surprised if this thing went to 2540 today, and that would change the nature of this selloff into something more vicious than even a bear like me would expect.  It does seem like yesterday's selling did finally change the tune a bit from its just technical selling, to, it will take some time for the market to settle down.  There is a gradual acceptance that this selloff will not end in a V move higher like people are used to from past selloffs. 

Anytime you take the VIX from 12 to 50 in a few days, you will leave a mark and bruise the psyche of the bulls, making them reluctant to jump head in to buy stocks.  I do expect a bounce to start either later today or early next week, but the question is how high can it go.  Not so sure that it can hit 2720 again so quickly.  If it did get anywhere near 2700, I will dump my long and consider another short. 

One bad sign for the bulls is that bonds continue to act like it has the plague, unable to rally at all even though the stock market got destroyed yesterday.  That will be a pressure point for this market until bonds stabilize.  This bull market will not keep going higher if interest rates keep going higher.  The pain point has already been hit, its just the stock market bulls are in denial that it only takes a 10 year above 2.80% for the pain to arrive, not 3.5%-4% like most thought.

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