Thursday Outlook: Wipeout?

Big Wednesday, Bonzai Pipeline Oahu

No rest for the wicked, eh? Just when I was thinking some sideways action would be in order, economic reality wipes out tame expectations. Stock investor wipe-outs are continuing. If you want to ride the wild surf, you better be nimble or have some guts. If not, stay on shore as in 'cash'.

You’re already starting to hear the chatter for another round of interest rate cuts. That won’t stop until we reach 0% which isn’t all that far away. Authorities are out of meaningful ammo.

Sure, some bulls will say we’re still up on the week. Go ahead and slap ‘em if they say that to your face since we’re only up slightly.

I don’t know if the following volume and advance/decline data is right. We may have had a 10/90 day.



Leave it to blog reader and ETF Digest subscriber David Hurwitz to help me get the numbers right.

Thanks Dave!

click to enlarge

I don’t usually post my internal charts but here’s a peek at the “daily” SPY chart with other indicators, some of them proprietary. The numbers are from DeMark Indicators which here are displayed on a “daily sequential” basis. This means a “9” count would mark a short-term end to a trend. Most of the time, you just want a “reaction” from this count and that’s what we got Monday.

Daily charts generally aren’t important to us except when markets are at extreme conditions and multiple indicators confirm this condition. So either be prepared to take some heat or step aside. That’s where we were Friday.

click to enlarge


So, we got the reaction we wanted on Monday but now we’re quickly oversold once again.

All things considered, color this market oversold and dangerous.

The natural tendency has been to try to find a past market that resembles closely what we’re experiencing now. The 1929 market crash illustrated below fell from its peak of roughly 380 to 200 or 47%. The culprit then was leverage [check] and greed [check]. We’ve already fallen 42% as of yesterday with an intraday low down 45%.



In the 1974 recession, the markets fell from roughly 1,050 to 575, or 45%.



And in 1987, we fell quickly from a high of roughly 2,750 to 1,650 or, you guessed it, 40%.



You’ll notice the gap in the above chart similar to what I’ve been highlighting in SPY.

The bear market of 2000-2002 left the DJIA down almost 40%, peak to trough.



What would make the markets different this time? Nothing really.

I could list and annotate all the markets as usual but I’m not going to since everything looks the same, just about. I’ll study the charts on Friday.

What are we doing? Well, we’re still going to the coast today. I’m going to relax but keep my laptop with me. Barring anything unusual, I doubt I’ll be posting tomorrow, then again, I wasn’t going to post today either. The podcast won’t take place until Sunday as will alerts if any.

Will we reshort? Maybe. Will we be bottom picking? Not likely. Those notions make me think of an old Jimmy Durante shtick:



“Just when I thought I was out, you pulled me back in.”

Have a pleasant day and let’s see what happens.

Disclaimer: The ETF Digest has no positions in the listed securities.

Comments

[Umm, yeah:]

'Just when I thought I was out, you pulled me back in.'

Isn't that also Al Pacino in one of the Godfather movies?

Enjoyed the article as usual. Thanks.

2008 Oct 16 07:34 AM

[investor88:]

Articles reasonably captures the mood of the markets ie oversold and dangerous! Be prepared for battle or else stay in cash as David has advised.

2008 Oct 16 07:50 AM

[SAF:]

Nice work as usual. Michael Corleone said it in Godfather III. Don't recall ever seeing the Jimmie Durante shtick.

2008 Oct 16 08:05 AM

[Winston Smi...:]

How can we ever find the bottom when Financials won't come clean and tell the truth? This is Enron-like chicanery to hide and distort the truth: SEC Agrees to Accounting Shift Sought by U.S. Banks

www.bloomberg.com/apps...

2008 Oct 16 09:24 AM

[pchris:]

Alpha seeker. Based on the 141 negative posts you have written so far, you should change your name to Alpha LOSER. Get some therapy.

2008 Oct 17 10:14 AM