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Greg Sommer
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Portfolio Manager in Silicon Valley, CA.
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Greg Sommer's Trading Blog
  • More lows for the SPY? 0 comments
    Sep 11, 2011 9:23 PM | about stocks: SPY, AAPL, GMCR, LULU, MNST, ULTA, WFC
    At the end of July I wrote about a technical pattern developing in the SPY and the possible downside in the markets. (Link to article) Low and behold the pattern materialized and the market tanked.  Luckily I was in cash when this selling really took hold and took some selective shorts when the opportunity presented itself. 

    Now we have been chopping around in a very wide range in the S&P 500, approximately 1120 to 1220.  With the VIX at levels above 30 the daily moves in the market have been large and unpredictable.  With the headwinds in the world, both economically and politically, it's no surprise traders are hitting sell.  The European debt crisis is unresolved, the U.S. was downgraded from AAA for the first time, U.S. banks under extreme regulation, unemployment at 9.1% (and in some cases much higher depending on where you live), the U.S. has wars on three fronts now including Libya, turmoil in the middle east, natural disasters destroying infrastructure in the U.S. and Japan, the list can go on and on. 

    Now back to the charts, the SPY has been trading in an upward sloping channel for the past couple weeks and Friday we closed at the bottom of the channel. 

    Considering the extreme down move and the continued weakness in major names, I am looking for another move down below the channel.  Either we will retest the low of $110 made on Aug. 9th or we will make another low possibly down to the $108 to $106 level.  I am inclined to buy these new lows where you can get great value in some companies like Apple. Other companies I like and have been following include GMCR, LULU, HANS, UTLA, WFC,...

    Here are some fun facts about the state of our country.

    - U.S. Sovereign debt downgrade; first in American history
    - Federal Spending (25% of GDP); highest since WWII.
    - Budget Deficit (10% of GDP); highest since WWII.
    - Federal Debt (67% of GDP); highest since post WWII.
    - Employment (58.1% of population working); lowest since 1983.
    - Increase in nonfarm payroll employment (0.5%) since recovery began 26 months ago; slowest recovery from severe recession since WWII.
    - Home-ownership rate (59.7%); lowest since 1965.
    - Percentage of taxpayers paying income tax (49%); lowest in modern era.
    - Government dependency (47%), defined as the percentage of persons receiving one or more federal benefit payments; highest in American history. 
    - Obama administration that flip flops on policies including environmental regulations, how to reduce the deficit and how to spur the economy/reduce unemployment. Yeah Check. 

    One thing is for sure, things need to change in this country fast. 

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