S&P 500 Looks Ready to Bow Out

I come from the school that the more times you test a level the more likely you are to break it (either up or down). The easier path as we constantly thrash against S&P 840s remains down - we're wearing down the defense. Unlike last Thursday when you had a very anticipated break of support, a "swooping" out of stop losses across The Street and then a huge intraday reversal, I think this time around will be different if indeed we break S&P 835 again (same level in the sand we cited last week)

In my infamous "day of technical difficulties" trades I was mentioning how I'd lighten shorts and go long into that stop loss trigger chain reaction sell off. This time around I will/would not. I'm actually adding short exposure once you get below S&P 830 as 800, and then 770s seems very clear this time around. I believe we have a great chance to break down once we fall through - we have yet to CLOSE below S&P 840 - that will be the next negative trigger. Again, if this plays out, S&P 800 will be a psychological stop - we'll see if that is cut through like a knife in hot butter or if there is at least some defense. If not, I think we could make a quick 10% downside move to our 2002 lows... S&P 770s.

I'm trying to be contrary against myself - asking if my constant negative reference is in itself contrarian. But I simply see a lack of buying. Buying individual stocks is now Russian Roulette as we can lose 30% in hours in any issue at any moment. Etc.

Again, in summary form - unlike the last time we were here (last Thursday) I believe this time we won't bounce and in fact will knife down once we clear below S&P 835. A close below 840 will set off negative vibes and cause more to run for the hills. If this plays out as anticipated the next trading buy to me will be a panic crescendo as we reach 2002 lows.

If you are a bull, S&P 840 (on a closing basis) is the level you must support. All eyes on it (intraday low Oct 10th).

Comments

[Wez:]

You're probably right Mark, but the avalanche of news is ALL negative. Look at Bloomberg, I've never seen every single headline negative before. There is real fear in this market right now, which is why I just went 100% long. Like I said, you are probably right and I will suffer some losses, but we may just find some light ahead in what seems an endless tunnel of darkness.

2008 Nov 18 08:11 PM

[DussaultCap...:]

I agree, Mark. Every time we retest the support level sentiment becomes less bearish/more bullish which increases the odds that the support level will fail. I went net short a few days ago.

2008 Nov 18 08:50 PM

[Mark Best:]

If so many people anticipate the test of 2002 lows it is very likely that we will go lower.

2008 Nov 18 10:36 PM

[TraderJoe100:]

This market is heading up from here, I think, and am so playing it. Too many folks expect a breakdown. So I am going with an unexpected breakout (upwards).

Be careful out there!

2008 Nov 19 01:22 AM

[TraderJoe100:]

Too many folks expect a breakdown. I am playing this expecting a breakout (upwards). It does not make sense so that is why it will probably happen. At least 500 points up from this level and quick. I think, and am so playing it.

Be careful out there.

2008 Nov 19 01:24 AM

[punk_ash:]

zero sum game for most part.

2008 Nov 19 01:48 AM

[Still Renting:]

Well, the day ended and now we know. Closed at 806.

770 here we come?

2008 Nov 19 05:29 PM

[DaveW:]

Thanks for the heads up on this yesterday Mark. With many of the traders of the world chirping this warning it was pretty much a sure thing by way of self-fulfilling prophesy. Scary how little buying is going on out there, the eventual tsunami upwards will be staggering.

2008 Nov 19 06:02 PM

[Still Renting:]

If a stock does not pay dividends, it's only value is what others are willing to pay for it. It's price survives solely on sentiment. It is not so much self fulfilling prophecy that depresses these stocks. Rather, it is sentiment that there may not be "greater fools".

And pendulums never stop at equilibrium.

2008 Nov 19 06:34 PM

[Homer II:]

SP500 closed Wed 11/18 at 806. So, you are right so far.

However, T/A in times like these is pretty useless.
I see more declines the rest of this week, and into next week. Not easy to say where support is next as we are again in uncharted waters.

2008 Nov 20 04:39 AM

[mycousinearl:]

I smell a short squeeze coming...

2008 Nov 20 03:10 PM