Sunday, June 12, 2011

"Stock Market Choice Between Bulls Buying or Waterfall Drop"

Great minds and all that.
After the market puked into the last hour on Friday (although somehow closing higher than the low for the day) I thought of the run up to the crash in 1987.
The market hit its then all-time high on August 25, 1987, memorable, if for nothing else, for the mountain chart that Fidelity ran as a full page ad in that day's Wall Street Journal. That sucker looked like the Eiger, lots of vertical.* Of course they were focusing on the almost-five-years-to-the-day upward climb.

They didn't know that their ad would run on the day the market would turn south

The decline from that point was slow and easy until October. Steady, 2722 to 2600 meandering like a river coming out of the mountains, out of the meadow.

Not scary, dropping a little, up a little until...
The DJIA closed at 2640 on both Oct. 2 and Oct. 5. Hmmm...

Then a 10.8% drop in 9 days, Holy crap, these are class V rapids!
On Friday the 16th we hit class VI: "Danger to life and limb".
London trading was closed because of the "Great Storm" so everything pent up and the "portfolio insurance" stuff had to be done in New York. In whitewater terms the water ran into constriction.
The DJIA was down a then record 108 points.

And, just like real life, it got worse.
Toward the end of the day, over the roar of the rapids was the sound of...
a waterfall.

Black Monday's 508 point, 22.6% collapse was the first and worst waterfall decline I had ever experienced.
I thought about it and the riverine imagery leading up to it after the close this Friday.

Best guess for this week?
A fakeout shakeout Monday/Tuesday, 10-15 S&P points down and up from Friday's 1271 close.
Followed by a 3-3 1/2% upmove by the close on Friday.
We'll have more tomorrow. In the meantime here's WavePatternTraders via The Market Oracle:
It appears that the markets are now moving into areas where the bulls need to decide if they want to hold this market and step up to the table to buy it, or leave well alone and then could potentially see a waterfall from these levels.

The market is very oversold, there is no question about that, but the big moves come from oversold conditions, with the market now reversing from the lack of support from the POMO and QE operations, it's clear that the stock market rallying for the past 2 years has been one big shell game, and unless the FED comes into support the markets via another round of POMO and QE3, then further prices are likely, just like we saw in 2010 as QE1 ended and a near 20% correction until word of QE2....MORE
 The fall of '87:

Seriously, I'll be back.
I wont leave you hanging.

*North face of the Eiger: