Selloff smells different this time

D

detective

Since March, for over 6 months, every dip of 4 to 5% have been great places to buy for eventual new highs. Those who have sold weakness have been battered.

But this time, we've had more complacency with the selloff, everyone already saying this is a buying opportunity. The action on Wednesday was very telling.
The bulls came out with guns blazing to defend 1042 on the ES and held that support, causing a lot of intraday volatility. But they used up all their ammo in the process. Volume was absolutely huge. All the bulls went in believing support had held.

By Thursday, all their bullets were spent and it looks like the bulls are out of dry powder. Thursday tells me that the market has changed character. The dips are no longer safe to be bought, and now rallies are to be sold.

Divergences are everywhere. China topped out in August and has been weak since then. Japan has been especially weak over the past 2 weeks. The Asia growth story seems to be on shaky footing. Without it, the equity markets are in trouble. Also, secondaries are being forced en mass and after a 57% rally, equities are no longer undervalued.


I cannot discount a waterfall selloff to 990 where the market held in early September, a pause, and then another assault down to 940 - 950 where strong support rests. Only then will we get enough fear for an investable rally. All this happening in October, when fear will start to percolate as the indexes go lower.
 
Dseven at freetradingvideos.com said if we close below 1020 on the S&P, the market's gonna sink. So if we close above 1020, that means we stay bullish. Remember, '09 is not a normal year.

Regarding China, they've been consolidating since August, so their bull power is itching to run.

Don't get caught with your shorts on.
 
While watching CNBC after the nonfarm payrolls report, I noticed a change of attitude towards a weak market from the weak market at the start of September. This time, I heard that people were viewing weakness as a buying opportunity. They were not forecasting further weakness or fear of a rough month.

And like clockwork, the dip buyers showed up at the weakness off the open. But what's important is that the market was unable to close higher or near the highs. It managed to only tack on a few points off the open by the closing bell.

With all the dip buyers waiting to buy at 1000 on the S&P, we'll probably not crash down hard, but I also don't see the sharp rebound of the past 6 months. The pattern is too well known now. Complacency is such that it seems like most of the hot money is already in. So I don't see a sharp rally at this time like in September. Look for a run down to 950 before we get a solid bounce.
 
beautiful piece detective as i was about to post a similiar piece. i read at leat 20 articles today and almost everyone was poo-pooing the employment report and selloff and begging all to buy buy buy. people have become so complacent and confident they can buy all dips no matter what the news and win. everyones gaming the system huge and will be killed soon. read the following piece just posted on cbs marketwatch. EARNINGS ETS HAVE ACTUALLY BEEN LOWERED FROM DOWN 20% TO DOWN 24% THIS EVEN AS STOCKS HAVE SKIED SO ALL CAN BEAT ESTS. the scam is now too well known



U.S. stocks turn to earnings to save the day
Alcoa kicks off earnings with another big loss expectedExplore related topics

NEW YORK (MarketWatch) -- Investors, who have turned more cautious about the U.S. economy, will turn to next week's kickoff of earnings season full of hope that market expectations have been taken down enough to help stocks return to their winning ways.

"Over the past couple of weeks, we've been going through the digestion phase of the July-to-September gains and now the market is looking for reasons to become optimistic again," said Sam Stovall, market strategist at Standard & Poor's.

the face of it, things were still bleak for corporate America in the third quarter.

Alcoa Inc. /quotes/comstock/13*!aa/quotes/nls/aa (AA 12.91, +0.09, +0.70%) will play its traditional role as the first blue-chip company to report results on Wednesday. The aluminum giant, seen as a barometer for the economy, is expected to post another staggering loss, reflecting the overall performance of the materials sector. See full story.

On average, earnings at S&P 500 firms are expected to be down by 24.8% from the year earlier quarter, marking the ninth consecutive quarter of negative earnings growth, according to Thomson Reuters.

And there have been only a few downward revisions to estimates from analysts or companies. At the start of the quarter, earnings were expected to be down 20.9%. Lowering expectations tends to help stocks when the actual results come out.

"But the trend [of revisions] is similar to what we saw in the second quarter," said John Butters, financials analyst at Thomson. "And in that quarter, we saw 73% of companies topping expectations, the largest percentage since the first quarter of 2004."

And companies on average topped expectations by a huge 13.4%, helping the market continue its rally through the summer and into September.

"With the Dow falling in the past two weeks, the market has been discounting some possible disappointments in earnings, so that when they come out, we may see the rally resume," said Ken Tower, market strategist at Quantitative Analysis Service.
 
It all depends on your trend definition methods.

Is this a pullback/retracement or a reversal ?

We all got our techniques that's what makes the market what it is.
 
Quote from Nexen:

It all depends on your trend definition methods.

Is this a pullback/retracement or a reversal ?

We all got our techniques that's what makes the market what it is.
More...

It really depends on your trading time frame.

Intradaday, pure trend days have been rare, so you can play your favorite direction or both directions profitably.

Looking at the daily chart since July, the past 2 weeks' action established a reversal with lower highs and lower lows as well as a breakdown through 20-period MA.

On the weekly and monthly charts fom March, we're in a pure uptrend, and the past couple weeks' action is a normal pullback in the trend, with price riding perfectly above the 20-day MA.

No need to analyze the trend beyond the monthly time frame because we are, after all, traders and only become long term investors when our trades go bad :D
 
Quote from detective:

Since March, for over 6 months, every dip of 4 to 5% have been great places to buy for eventual new highs. Those who have sold weakness have been battered.

But this time, we've had more complacency with the selloff, everyone already saying this is a buying opportunity. The action on Wednesday was very telling.
The bulls came out with guns blazing to defend 1042 on the ES and held that support, causing a lot of intraday volatility. But they used up all their ammo in the process. Volume was absolutely huge. All the bulls went in believing support had held.

By Thursday, all their bullets were spent and it looks like the bulls are out of dry powder. Thursday tells me that the market has changed character. The dips are no longer safe to be bought, and now rallies are to be sold.

Divergences are everywhere. China topped out in August and has been weak since then. Japan has been especially weak over the past 2 weeks. The Asia growth story seems to be on shaky footing. Without it, the equity markets are in trouble. Also, secondaries are being forced en mass and after a 57% rally, equities are no longer undervalued.


I cannot discount a waterfall selloff to 990 where the market held in early September, a pause, and then another assault down to 940 - 950 where strong support rests. Only then will we get enough fear for an investable rally. All this happening in October, when fear will start to percolate as the indexes go lower.
More...
i agree. i am positioned for a nice selloff that will put some fear in the bulls.
 
NYSE Bullish % Index (the leading belweather market indicator, IMO), just went Bearish officially on Friday, after the close. It had been at a 12-year high of 84 of late, and dipped below 78 after close yesterday. This is the best indicator for telling us that we are now in a Bearish mode. See the supporting chart at:

http://stockcharts.com/def/servlet/SC.pnf?c=$BPNYA,P

If you look at the support line in the above chart, there is massive room for a major correction from here.

NOTE: A rudimentary understanding of P&F charting is necessary to understand this chart.
 
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