Thursday, May 06, 2010

YIKES !!!!

Here is a daily chart of the cash S&P 500 showing its 50 day moving average (blue line) and its 200 day moving average (red line).

From 2:30 pm to 2:50 pm today the ES dropped from 1131 to 1056, about 7% in twenty minutes! The range for today (thus far!) has been 112 points, about 10% from high to low. At the 1056 low a short while ago the market had dropped 13% from its 1216 high with most of that drop coming in a couple of hours this afternoon.

To put this down swing in perspective recall that the two biggest drops since the March 6, 2009 low at 666 carried the ES down 9.2% each. The first carried 90 points and the second 107 points. This latest drop has been 13.2% and has carried the market down 160 points from its 1216 top on April 26.

What now? I still think this is a bull market. Indeed, a down move like this one that develops such panic selling so soon after the top is characteristic of a bull market correction, not the kickoff of a new bear market. At today's low the cash S&P was well below its rising 50 day moving average and a little below its rising 200 day moving average. This sort of configuration is normally associated with a buying opportunity in a bull market.

As I was writing this post the ES rallied from its 1056 low back to 1131, a 75 point move again in only 20 minutes. Taking history as a guide I think the market will take a few days to stabilize, but I doubt that it will again get anywhere near the 1056 level. I would guess that the 1080-90 level will now be support.

The next big swing should be another bull market up leg. This means that it will carry to new highs above 1216 and probably into the 1250-1300 zone.


fletcher said...

Carl, as a committed bear, but always interested in your contrarian view, and i will concede that these days i check your blog before any of the bearish blogs - but the bounce today can that not be anything but the PPT seriously throwing their weight around?

Best regards

Nick said...

Thanks for the Update, Mr.Futia. I had a couple of stops get hit then fly back up. AAPL went to 200? VIX is in outer space. On top of that I live in Nashville where a flood is going on. All-in-all this has been a crazy week. They just don't make up days like today.

tempo said...

Great perspective. IMO computerized algos caused the wild swing and that will now be stopped. Also there is nearly infinite liquidity so the idea that Greece is a model for the USA/Germany/France is silly. Expect new and larger stimulus programs and deficits. Greece demonstrates that the alternative is civil unrest which is unacceptable and not necessary. We need inflation!!! not more deflation.

huggybear said...

Report from the pit that CITI fat fingered an emini order. Tried to sell 16 billion contracts! lol

Joseph said...

Hi Carl

If asia drops on Friday then next MON will be a huge bad day. My question is do you forsee this happening and bringing this down to 1090/1080

Thanks, any feedback would be appreciated

pimaCanyon said...

On a day like today, I appreciate your posts more than ever. Nice to read calm, collected, rational analysis in the midst of this panic.

Not only did the equities market freak out, but bonds and of course VXX had some pretty wild swings. Would have been nice to have been long TLT or VXX or even gold.

Narayana said...

LOL was wondering when your uptrend would end.

Chad said...

I also post on under "raven" I walked this thing through including todays move down.
I had no idea about the 1000 point drop but was looking for something to equl may 3 drop.

This is not a Bull Market it is a Boiled Market as is entropy.

THE NEXT MOVE UP IS GOING TO TRIP EVERYONE OUT !! After that the next move down will freak everyone out. There is money to be made lock and load boys and girls lock and load !!

Market Karma said...


nice comments. Following your words

"Indeed, a down move like this one that develops such panic selling so soon after the top is characteristic of a bull market correction, not the kickoff of a new bear market",

This begs the question, "What is the characteristic we should expect to kick off a new bear market?". I am sure everyone following your blog would love to hear your answer to that one.

I have heard a few rumors to "blame" for the sell off.. these being:

1) a very large out trade in Procter and Gamble stock took the price down from 61 to 40, and then back to 61. This was responsible for the very sharp S&P down move 1117 to 1066 and back again.

2) Citi's index arb desk calculated the index level incorrectly which triggered a program to sell index futures in massive size to "arb" to true stock level.

Whether these rumors are true or not is immaterial. The fact of the matter is that it has impacted the pnl and psychology of market participants which can have a significant impact on the markets. We still have huge event risk with UK elections, German vote on greek aid, US employment report, etc. Wild times!


lil said...

The spike lower will be revisited at some pt days/wks months but usually not longer than 6 mon
I have seen this happen w the indices and w individual stocks

pimaCanyon said...


What is the point you're trying to make with your comment? Are you implying that "your uptrend", as you put it, has ended? If so, why not just come out and say that and support it with whatever analysis you're willing to share? Or was your comment merely an attempt to ridicule? (the "LOL" makes me wonder.) It's hard to tell nuance from written comments which is why I'm asking the question.

Dave Narby said...

Carl, with all due respect, I think anyone who thinks this is a natural, "organic" market is fooling themselves.

This is the problem when markets are fluffed by HFT on no volume. There's simply no buyers on the way down.

I repeat my calls for new lows (probably by this Summer, as there will likely be a try at new highs first), with the DOW:GOLD ratio hitting 1:1 at ~5500 each.

After that, no more market like we know it. There will be completely new systems in place. Get ready to kiss the USD buh-buy. And that's not a bad thing.

dcatlowpj said...

Actually, Gold might be a big buy here.

People are freaked out!

Kishore said...

Carl, with all due repect,this never was a bull market in the traditional sense.

Market Ticker Guy, also a Karl, Karl Denninger, says it beautifully:

"When governments tamper with markets as has been done over the last year and change to the point that true liquidity leaves and is replaced by computer-driven volume, this is what happens as there is NO UNDERLYING BID.

VOLUME IS NOT LIQUIDITY. Liquidity creates volume but not the other way around. We have deluded ourselves into believing that a handful of major banks passing shares between each other funded with zero percent loans equals "liquidity.""

tempo said...

The FED has proven it can create near infinite liquidity by lending to the banks so they can buy Treasuries. This will not only continue but accelerate. IMO the US and EU must now move the market higher to restore confidence. A short covering rally can be very volatile on the upside. Treasury rates are near record lows which indicates this is a normal market correction. The time to sell is when 10 year Treasury rates move above 4%. I am buying large Cap, high quality, dividend stocks on any sell off tomorrow.
Mining, natural resource stocks will be very valuable over time with a world poplulation of 6 billion. Carl, Thanks again for your great postings.

Kishore said...

Apparently, HFT computers triggered all the stop loss orders today on the way down.

And, some other people snapped up all the stocks as the market recovered quickly. Maybe, some banks, like Goldman Sucks, did all the buying with free money from the FED.

The question is:

Will those who snapped up everything, with very deep pockets, find any buyers when they want to take profits?

The long term investors were forced out of the market today.

Most probably, we will soon retest today's lows or even go lower.

Uncle Sam, save it if you can! Very tough!