. – Thomas JeffersonI believe that banking institutions are more dangerous to our liberties than standing armies
No articles today, just a very frustrated and exhausted me going from the hip.
Stocks and I got walloped yesterday! This market is not for the faint. Even worse was that the selling accelerated towards the close. This was the biggest single day decline we've had since mid-July, most of the major indices crossed below their 200-day moving averages - on pretty good volume to boot.
NYSE - down 3.3%
NASDAQ - down 3%
S&P 500 - down 2.8%
DOW - down 2.5%
None of my systems triggered a sell, but man it felt terrible watching. The whole thing was just as senseless as the rest of this summer has been. It really defies logic. The WSJ told us exactly what the Fed was going to do last week, so why the big surprise? And why was this perceived as such bad news when the market moved up on all the other bad news? We truly are a bunch of monkeys.
Today’s Investor Business Daily has gone from “green” to “yellow” by putting the market as “uptrend under pressure.” Yesterday the market gapped down hard, and just kept spiraling down for the entire session. But is the uptrend broken? That was the conversation I was having with several of my technician buddies. The overall argument made was that the uptrend really wasn't that strong (very light volume) in the first place, which we all agreed on, but other than that we had several conflicting opinions. The significance of a trendline is usually determined by two factors, namely the number of tops (or bottoms) that the trendline goes through and the length of time the trendline has persisted without being penetrated. And that is where we were focusing our discussions.
So was yesterday a penetration of our still relatively new and weak uptrend? We could not agree. The general theory is that for a trendline to be significantly penetrated and reverse the direction of a trend you need to consider two factors:
1) The extent of the penetration
2) The level of volume
In order to change a trend you generally would need prices to penetrate about 3% (our consensus) through the trendline before a break in the trend is considered valid, which we did hit on two of the indicies I mentioned above (NYSE & NASDAQ), and the other two were awfully close.
The other factor, volume, was higher yesterday, but we differed here in our opinions because recently volume has been really light, so any surge in volume seems significant in comparison. This run up has been on so little volume that a sharp move was not surprising. (I also mentioned several times last week the tight action in the indices and that it has been my experience that such tight price action usually results in a surge either up or down. Although I called that right, I was wrong in my bet on the direction.)
In the end we all differed and agreed that we would have to wait a see what the near future holds. I hope we have seen the lows for the summer and that yesterday was just an over reaction, but this market is not reasonable. I'm praying for something of a rebound today, but the news from Cisco was very disappointing.
The fear gauge, VIX, shot up to 25, but I thought it would go higher as I was watching the decline.
Here is a peek at the charts and the damage done. I was somewhat pleased with the chart action forming - until now. I hope we recover.
The C Fund broke through the 200 day moving average, but seems to have found support at its 50 day.
Pretty ugly. Will it bounce back?
The I Fund ended up in the middle. I’m not sure what to think about this one here. Thoughts?
What can I say? The F Fund continues to trucking along. Beautiful.