Is the Panic Over?
The market was crushed again, and my 1250 target was hit - now what? Once 1301 broke earlier in the week, the new target became 1250, which was the lowest level of our trading range. And the decline happened quickly; only one week ago the market was knocking on new highs above 1350.
Volume has increased in a dramatic way over the past week as investors have literally fled from the indices. Conversely, new money poured into bonds, which is a sign that investors want out of risky assets in exchange for low risk investment vehicles.
And unfortunately, this flight to bonds does not look like a quick trade. The move in bonds appears to be the beginning of a multi-month push higher. As such, there is every reason to believe that the stock market will experience a downward move over that same time.
The bulls had their chance. Earnings were great and the market was more than willing to ignore tepid economic data in July. But the bulls were not able to take the indices beyond the May highs and subsequently lost all their momentum.
The bears have all the momentum right now, and thus far they have seized their opportunity by knocking down 1301 and 1280 support within a four day stretch.
The indices are extremely oversold, and I expect a bounce over the next day. But 1301 will be a brutal battle zone for sellers and buyers. I think the bulls are going to need a catalyst to jack the market back above 1301. In fact, I think the bulls will have trouble with the 1280 area if they cannot reclaim it by tomorrow.
We took on two new longs positions, yesterday amid the carnage. Although the bears look poised to take down 1250 long-term support, they haven't done it yet. Plus, I think the indices should experience a short-term bounce from this level. But if buying pressure weakens near 1280, it's time to go heavy into cash, or go short the market if that is in your comfort-zone.
A large decline is back on the table now that 1301 has been broken. And much like earlier in the year, the bulls need to stay above 1250. My bullish bias is gone after Monday's break of 1301 support, but I will not go exclusively bearish until sellers can take SPX below 1250. Since the TradeMaster portfolio is mostly cash, the near term price activity is not a concern, but if we had more bullish exposure I would recommend selling positions or initiating hedges. I will look to buy stocks near 1250 and sell positions near 1301 since that is likely to become our short term range.
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