Asia and Europe are certain [I think] to tank on Monday and I suspect that US markets will at least initially follow suit.
What is less clear is what may happen next. I won't be looking at the typical indicators such as MACD, stochastics, or put/call ratios for the immediate future. I believe that these indicators are likely to give false signals in exaggerated volatility.
I think that the main factor early in the week will be margin induced selling. If there is another round like we saw last time, institutional investors will stay out and let the market fall. An additional 10-15% drop wouldn't be out of the question. There may be a tendency to rebound later in the week due to options expiration. Another major factor is whether investors start redeeming funds. I don't believe that there has been much of that as of late. Where does the market have to be, to induce redemptions...not sure...but we're not there yet.
What I will watch closely is market volume. Ideally, what you "should" see is a dramatic rise in volume along with a dramatic drop in market values; a very brief drop in volume and a flattening of the drop; followed by a sharp rise in volume and a comensurate rise in the markets. This all may occur in a matter of a few hours to a few days.
In terms of specific numbers, a somewhat orderly market will drop to 3,000 to 3,100 rebound to 3,500 and then retest the low of 3,000 to 3,100. I believe that the retest will fail and the NAZ will drop to something around 2,600. A disorderly market may drop rapidly to 2,600. [I'll look for signs of redemptions at this point] Numbers below 2,600 are certainly possible within the next month. Major redemptions could push the market significantly below 2,600.
Still waiting for a good hand to play <s>. Lot's of great values out there that I suspect will be even greater bargains in the coming week to weeks. I think that any trading for most of the remaining year should be short to medium term.
jttmab |
