INDEX UPDATE
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Saw the futures as low as down 12 earlier this morning, so the obvious question is that was the CLASS SELL which started WED the beginning of the big pullback and are we going to continue straight down now.
That is a very hard question. Per my short-term technicals, which are all heading down and have a lot of downside, do hint that we could go much lower. From a quick mathematical calculation, not considering support lines/TA factors, my short-term technicals would move into the oversold region if the DOW dropped 500-600 points, so there is plenty of downside potential, and that would not be the downside limit since the market can go even lower while in the oversold range.
So from a technical perspective, it is possible that we could head straight down from here.
If we break the support line at 8317 significantly (25-50 points), then that would be enough confirmation that the DOW will go to the next support lines at either 8200 or 8050 or even lower - yuck. I believe that if and when we break 8317 the market will attempt to bounce up from there. That could possibly be a good time to initiate puts if not already done so. Frankly speaking Im not waiting that long.
I now strongly believe that 8750 is the top of this reflex rally, which is technically a bad signal since all the DOW could regain after the big dump is 39%. The average reflex rebound after a big dump is 62% and last OCTOBER the market rebounded about 70% within 6 days of BLACK MONDAY. If I am correct that 8750 was the top of this rebound then this is BAD, BAD, BAD, BAD, and not just a little BAD.
Is there a chance that we could get a rebound to the upside after today's selloff - YES, but the chances are not great. If we do rebound anywhere near the 8700 range early next week - JUST INITIATE PUTS. Pushing my analysis a bit - if there is to a be a bounce to the upside, the highest probability for it to start would be in the 8450-8525 range, then hopefully we can get back close to 8750 to initiate PUTs. I also believe that if the is a bounce from the 8425-8500 range it will be fast and furious, similar to what we saw earlier this week, and could take up even higher than 8750 to around 8850(slim chance).
Over the next month and before SEPT expiriation the market will head lower, and the best case senerio I can see now is that the support line at 8717 will hold, which is only 300 points away from yesterdays close. THATS THE BEST CASE SENERIO. My short-term technicals will just start to approach the oversold region if we get to 9317 within 2 days, so there is more downside.
I really don't wish for the market to dump into the low 7000 range, and heard on SI that Jerry Favors and quite a few others are calling for the dump to get into the 6000 range. For those playing PUTS, sure this is the time to make money, but if we get to the 6000 range, does everyone believe that we will rebound immediately. It may take a long time, and Im not talking about a few months. If we do get that bearish, very few will be making money in the market whether BULL or BEAR, and what about the effects on the overall economy. So dont wish too hard for a BEAR MARKET, because we may get it and we may not like what we get.
Yes I am very bearish on the market, on strickly a technical basis. I am not a PERMA BEAR or PERMA BULL, just a trader hoping for a market where I can still trade in to make a living.
Right now I have not yet decided if I will initiate PUTS today since the premiums will be very high, or wait and hope for a small rebound after this mornings selloff, whether a rebound happens today or MON/TUE. Again, if we are fortunate to get back to the 8700 range, I WILL BE IN PUTS.
At this time, there is stillfair to good chance that the support area at 8000-8200 could hold if the support at 8317 breaks, which is probable.
Please keep in mind a basic rule of TA, that
LOWER LOWS & LOWER HIGHS = DOWNTREND. We already produced the first major LOWER LOW when the DOW broke the support area at 8500 and got to 8317. If 8750 is the high for this rally, then the DOW would not have even come close to the major resistance line at 9041, and that this rebound is also falling way short of the average rebound of 62% after a major dump. So if 8750 is the top then we DEFINITELY set a LOWER HIGH.
Seeya
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