Right on cue, the S&P rallied sharply off technical support.
Panic Buying
Point-Counterpoint
- Fil Zucchi: +1334 tick. Coming after a -5 print on the 3-mth $VIX curve, bears may want to pay attention.
- Mish: Panic buys just to get back to 4150 off a perfect technical bounce.
Panic Buys
A Tick chart is a measure of stocks trading on up or down ticks. +1300 is a panic buy level. The reverse, a hugely negative Tick is dumping on falling prices.
Extreme Ticks often measure turning points. But for how long?
I wanted to show the chart but got this message from StockCharts: “We had to remove the $TICK market indicator from our site. Our data vendor no longer provides this data to us and we have not been able to find a reliable alternative source.”
VIX Panic
There is no reason, fundamentally or technically, to believe another 2008 repeat performance is unlikely.
Death By 1,000 Cuts
“Bulls should hope for a mini-crash to end death by 1,000 cuts”
I would agree with that and I would also suggest we did not come close.
And with panic buys (short covering) a setup is in place for a waterfall cascade.
S&P 500 Weekly Chart
I keep showing these support levels because they are important, especially in a bear market.
Both the daily and weekly technical support levels were the same. Traders knows these levels and so do the algos.
There was no fundamental reason for a bounce here. But there was panic buying off daily and monthly levels that were identical.
The next key level is 3723. I expect a bounce there +- 50 points or so. When that breaks, and I am confident that it will, the next support level is 3233.
The levels should be easy to spot. It’s simply the level where stocks bounced before.
No Ambiguity
Internal damage is severe.
Where to in the Next Week?
I have no idea where today’s bounce heads. Nor does anyone else. It could easily fail tomorrow or Wednesday when the Fed hikes rates.
Longer term, however, support levels that are repeatedly tested in bear markets eventually fail, often suddenly and spectacularly.
Where to Longer Term?
Again no one can say. But fundamentally, I highly doubt stocks do not at least sink at least to the 3200-level and far more likely the 2400-level.
The latter would be about a 50% decline from the top. Yet, it would not be close to a level that realistically could be labeled cheap.
For discussion, please see Warren Buffett Blasts Stock Market Gambling Casino, Loads Up on Energy Shares.
Finally, If You Think I’m Bearish Please Read John Hussman
This post originated on MishTalk.Com.
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Mish
But in the long term – the demand-destruction (high prices, which less will be able to afford)
should cancel out this effect.
In addition, the vast majority of oil companies have let their capital expenditures decline for many years, resulting in very little new discoveries. You can’t blame them as they can see that demand will start to drop in the next decade and they already have enough reserves to last till then. No point is spending a lot to add to future reserves that might not be needed. So supply is being restrained in many ways going forward. The same is true for OPEC countries other than Saudi. Not much capital spending, which is why they can’t even meet their current quotas.
I rather miss on another 10% upside, than risk -10+% down fall 🙂