Stocks this morning attempted a short rally and then fell back quickly working their way below 1900. At 1898 another rally was staged which basically faltered within minutes and the market shot through 1900. 1870 is the next stop for the market..
Market Direction SPX Intraday Chart
The SPX chart for this morning’s open shows below how steady the selling remains. The pattern continues to follow that of a typical waterfall with continual failed rallies. The belief by many analysts that earnings as they come in will stop this slide are probably premature at best and wrong at the least. When selling starts investors tend to join in the lower the index falls. That creates even more selling. Friday’s jump in volume while high did not seem like any kind of capitulation such as was being bantered about by analysts. Instead it seemed more like stops being hit and investors continuing to dump shares.
SPX morning open for Oct 13 2014
Ominous Signals
For the first time this year the 200 day exponential moving average (EMA) has been broken on all three indexes and the small caps this morning continue to falter with the Russell 2000 (RUT) index down another 0.66%. For the first time since January, the 50 and 100 day moving averages are turning sharply lower which indicates just how steady and steep the selling has been.
Morning SPX outlook -Jan 2014 to Oct 13 2014
Protection Should Be In Place
Staying in this market without protection is, I think, a poor choice. The SPX looks set to hit 1870 as early as today or tomorrow and while there is support there, the break of the August lows signals that stocks will move lower before they can regain any kind of traction.
Next Stop 1850
Once 1870 breaks the next stop is 1850 and from there you can see the very real possibility that the market can move as low as 1800. At 1800 though stocks are entering the higher end of fair value and that should be interesting.
I am expecting all kinds of volatility along the way with bounces at 1870 and 1850 which have stronger support than any of the previous support lines. This is perhaps the best opportunity to earn profits in a correction this year as the signals are the best they have been to date. Aside from the Fed’s head-fake rally last Wednesday and subsequent give back on Thursday, all signals for quite some time have pointed to down.
Market Trend Signal Down Since Sept 26
For USA members, the market trend signal has been down since September 26 which was the last update to the medium term trend. On that day the SPX was at 1982.85 at the close and the Jan 17 expiry SPY $198 put was bought for $6.78. Today that spy put is trading for $11.48 for a gain of 69%. Watching the The Stock Market Trend Page can sometimes yield big returns. Members can access it here. This is the kind of protection sometimes needed and done properly, the price is reasonable for the level of protection it brings.
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