Several of you technical analysts have been predicting
short-term rallies for the last couple of trading days. All
rally attempts were met by very heavy, program-driven selling
and then this today. Clearly some big players (institutions)
have become sellers. I remember one of those self-important
analysts explaining last year why the bull will go on for a while,
but then went on to say that there will be a point when HE
will push the sell button. Someone seems to have done that today.
But is this really the prelude for a significant correction?
SPX at a critical support level?
I don't think so. I think there is still too much bullishness
and not enough fear in the market. Bearishness still seems to
be a "buy" signal and buy-the-dips still in vogue. The dipsters
need to lose some real money before they give up.
I am still expecting a strong counter-rally (40 - 50 points?),
possibly starting on Friday after the employment report (any
report can be given a positive spin and the market is begging
for some relief). When this rally fails, and critical
support levels are tested again, everything will be set up for
a typical 2 1/2 day crash (one day preparing the crash, the
main day of panic selling, continued on the third but ending in
a strong rebound).
A crash needs a technically weak market + a triggering event.
If I remember right, the 87 correction was blamed by some on
the Bundesbank raising interest rates by 1/4 % to weaken the
dollar.
What could it be this time?
1. Monica: I don't think so. When Clinton confesses, I would rather
expect a relief rally. It would be a different story, if
impeachment proceedings were initiated and Clinton not resign
immediately, but fight on.
2. Asia: good candidate. Nikkei below 14000 or a Chinese devaluation
should do it.
3. Fed raising interest rates: very unlikely, Greenspan is bluffing.
The real problem may be deflation rather than inflation.
Other dark-horse candidates: Russia, Iraq,...
Anyway, what are peoples thoughts for the next few days?
I have not yet decided how to play it tomorrow. Take profits
on my short-term puts and reverse for the counter-rally,
or go for the significant correction right away.
Good trading to all,
Phil |
