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MARKET DIRECTION CALLS
August 2 2011 - Selling Intensifies
August 1 2011 - Bear Returns
July 28 2011 - Before The Open
July 27 2011 - Down But Are We Out?
July 20 2011 - Stock Market Volatility
July 18 2011 - Investors' Nervousness
July 15 2011 - Earnings VS Bleak Data
July 14 2011 - Below 1310
July 13 2011 - Ugly Looking Chart
July 12 2011 - Razor's Edge
July 8 2011 - Nasdaq Leads The Way
July 5 2011 - Expected Weakness
July 1 2011 - Overbought
Jun 28 2011 - July Rally?
Jun 27 2011 - Mixed Signals 
Jun 21 2011 - Bottom Or Bounce?
Jun 16 2011 - Raising Cash
Jun 15 2011 - More Downside To Come?
Jun 14 2011 - Bounce or Bottom?
Jun 12 2011 - Batten Down The Hatches
Jun 6 2011 - Bounce Sometime Soon?
Jun 2 2011 - Sell Signals and Warnings Everywhere
Jun 1 2011 - How Bad Could The Selling Get
Jun 1 2011 - Tread Carefully - Markets Remains Overvalued
May 31 2011 - Success - 100 Day Moving Average Tested
May 17 2011 - Be Careful Out There
Apri 18 2011 - Two Bears Compared
Apr 13 2011 - Why I Bought Puts Today
Apr 4 2011 - Breaking The February Highs
Mar 16 2011 - The Art Of Being Wrong
Mar 15 2011 - Market Remains Resilient
Mar 11 2011 - Trend Is Down
Feb 25 2011 - Trend Turning Bearish
Feb 11 2011 - Still Up - But Watch For June
Jan 3 2011 - Trend Remains Positive

 

Market Direction Call S&P 500


July 27 2011 - DOWN But Are We Out?

 

Is The Bull Over or Is It Actually Different This Time?

I sold my SPY puts during the afternoon today, but I will be getting ready to buy them back again soon as I think with so much selling today there should be a bounce. With all the fighting in Washington over the debt ceiling and the chance of a US debt downgrade the market just cannot hang on any longer.

The easy way to move is down. Too much whipsawing and the market is bound to eventually take the easiest course which is down. But does this mark the end of the Bull Market?

 

The S&P chart below shows how quickly the market collapsed back through the 50 day. It will be easy to now fall below the 100 day and retest the 200 day again. More than 700 million shares traded before 3:30 PM which, while not overly heavy, does show that computer trading was basically selling the S&P 500 and NASDAQ shares. By 4 PM that amount had increased to 1 billion shares marking one of the heaviest days of the year.

S&P500 July 2011 stock chart

The NASDAQ is now back to the 50 day. It was a very easy collapse today with the NASDAQ falling more than 2% in one day.

Nasdaq July 27 2011 chart

The NASDAQ lead this entire rally from March 2009 until now. With the selloff today, then the NASDAQ is telling me that the market is now in a strong downtrend. Today marks the worst day in 5 months for the Nasdaq.

The XLF in the last rally failed to regain the 200 day and now is again falling. The chance of it reaching 14.48, the most recent low of July 18, is I think guaranteed. The XLF is definitely signaling that the bull market is in serious trouble.

 XLF stock chart - July 27 2011

A few other things I noticed include that some of the stronger stocks have really pulled back today. For example, one stock that I watch closely is Bank Of Nova Scotia (BNS) which remained steadfast in the selling as you can see in the chart below. Today however this stock easily fell through long term support at $56.00 and fell to $54.75 at the time of my writing this article. That is a loss of more than 2% in a day. This is a very strong stock.

Bank Of Nova Scotia Stock Chart - July 27 2011

One last chart to look at is the VIX for today. Quite the jump but still not up to the $30.00 levels - yet!

VIX chart - July 27 2011


SUMMARY

The question then is, could a settlement with the US Debt Ceiling actually stop the selling and turn the market back around? Could it truly be different this time for the bull market? With so many ominous signs, I have to wonder if the bull market is drawing to a close. Remember though that in May last year the market fell harder than this period has been but it took QE2 to turn that market around.

Just remember that bear markets don't normally start with a "Bang". Overall the market is not down much for the month of July. This really has been more a seesaw month. Media outlets love to play up selling and the volatility that accompanies it. But I prefer to look at the selling as a possible opportunity which is why I am still selling puts.

Also, it is just as important to remember that if this is the bull market winding down, then there could be many months of slow pullbacks as stocks drift lower and lower. There will be other periods of higher volatility, and then days of serious selling as the question of whether or not stocks will survive return to haunt investors. I don't believe we are at that point and I am not even sure the bull is over. I do believe though it is important to have a plan or overall strategy in place, in order to enjoy profits during higher periods of uncertainty in the market.

At the the beginning of this year I indicated that my strategy was The Cautious Bull as I believed the easiest money had been made in 2009 and 2010. But if the bull market is drawing to a close, then the strategy of selling puts should change to selling calls. I will write more about selling naked calls, in another article.

 
 

 
 

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