Todays action in the markets has,at last , signaled at least a temporary bottom. Today met every criteria for capitulation except one. The historic 90% down volume on heavy volume was met. All 10 sectors declined at a near even clip. All indices declined at nearly equal percentages. The only ingredient missing was the 20% loss dynamic that has signaled bottom in previous downturns.

As I reviewed the data from the last years actions, I have come to the conclusion that the 20% dynamic is no longer a viable test. Having lost around 40% already, usually in 5% chunks on low to moderate volume, I no longer believe that the old model will work. The volume dynamic remains as a prime indicator, due to the need for a final collapse scenario which ties the other economic aspects together to create the " I give up" mentality across a widespread market system.

While I still expect the market to go lower, a drift down into the 8100 area to be specific, I am inclined to think that the worst is now factored in.

Over the course of the next several weeks, I believe we will see a consolidation and range bound trend in the 8100 area. Intraday swings may remain wild, but I look for closings within a 200 or so point range at the outside, less than a hundred most days.

One of my reasons for this range is the limited number of shares that remain available for creating the huge moves. Most of the really high point down days have been led by the financials, either by their own stock tanking or their liquidation of assets to raise capital. Conversely, most of the wild up days have been led by the financials, as they recieved huge infusions of tax dollars by the fed buying shares, the banks have not only covered their own margin calls with tax money, but have also gone on massive buying sprees of equities. All thanks to the blank check from congress.

With the election over and that uncertainty gone, many funds are also shifting their portfolios to what they believe will be Obama friendly stocks. I see this as not only ill advised, but premature. Two points on the political aspects relate here, first, no one knows what the new administration will do. Its leader has no track record from which to judge his future actions. Second, a new administration will be able to do nothing before February, if that early. Any new taxes or regulations will need congressional approval and the 111th congress will not even fully seat until late January.
Biding our time for a month or so and seeing how the cabinet shapes up and the policy hints from insiders will do far more good than todays guessing game.


Good Luck

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Excellent analysis and along the lines of what I've been thinking. Really, you can't use historical information a whole lot. This crisis has been quite unique in many respects.

I believe "the worst" is pretty well factored in too. Valuations for some companies are just absurd. While we will no doubt see some more jostling and volatility, I think most of the worst is behind us.

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Wow. I have no clue where todays action came from, but I stand corrected. Big time. LOL

These swings are just unreal.


Good Luck

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IMO the rules have changed the last few weeks.

I haven't quite figured out what's going on but I have noticed several "features".

1) I swear the indicies like the dow jones are moving in lockstep with the eur-usd. I don't mean they end close for the day, I mean tick by tick they are moving proportionately with each other in the same direction. On the order of 10 pips to $2 on the dow give or take (I haven't calculated exactly just eyeballing it).

2) The technicals on the eur-usd seem more reliable, as do the manner of trading. As far as I can tell this means the MAs on the eur-usd are the real support resistance points for both that and the indicies. It also means things like fibs matter much stronger than anyone is used to in stock land, and other stock chart based things like traditional support/resist become much less meaningful.

For example, the huge upswing today on the dow etc, that corresponded to breaking through the 15, pausing on the 30, then busting that and launching all the way up to the 120 ma on the eur-usd (there was nothing between and it was a long way up, stopped nearly to the pip). The last blast was rocking up through the 120ma on the 1h chart, and blasting up to rock off the 120ma on the 4 hour chart which is what terminated the run.

3) Moving both the major pair eur-usd and the large indicies in lockstep like this takes a hell of a lot of money, and must be some kind of computerized trading to keep it in proportion. It could be 2 sources, 1 source being something automatic to keep them in proportion, the second source being whatever huge amount of money is pushing.

4) Whatever is responsible for this, is either a) competing fiercely a la short squeeze style, b) a complete retard with way too much money, or c) purposefully trying to damage traders or move/manipulate markets to reset a new price level.

I can see two basic explanations:
a) some sort of huge hedge fund redemption short covering rally, though that doesn't explain why it seems to follow forex closer, nor why forex is following suit. But just because I can't think of a reason doesn't mean there isn't one.

b) Given that it is more closely following forex trading, I'm going with the notion that it's originating there in the major pairs like eur-usd.

Leads me to suspect possibly a central bank intervention of considerable size. The eur-usd had broken down lately and the usd was about to strongly appreciate even further. Maybe somebody didn't like that but was afraid to announce it for fear of failing and wanted to test their force without risking the catastrophe of announcing and failing.

It could be short covering or something perhaps, but if it is it's yanking forex markets around with it, and it seems to respect forex boundaries better in terms of pauses, support/resist and so forth. Whatever it is, it's huge.

Anyway, I'm gonna post a few charts in the eur-usd area of the forex section, some are real interesting in terms of insight and support/resist levels, if you wanna trade the indicies be aware that what happens on forex (specifically eur-usd) is seemingly dictating what happens in the market right now.

It's pretty vicious right now anyway.

I'll sum it up for you:

We're near a major resist on the 4h chart, which it smashed into to end the run, if that breaks through this is going to be an insane rally because the next resist is a long way up (like 6 cents, which is gonna correspond to about a 1000-1200 point jump in the dow or somewhere just under 10k).

If it doesn't break, there's very little upside, maybe 160ish points on the dow and dropping.