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Potential for a Bear Market
I write a lot about key pivot points, which I have defined as the most important areas of buying (support) and selling (resistance). How I derived these unique points is proprietary, but if you have been following me enough, you should realize that they are an effective technical tool to understanding the price action. Last week’s price action in the SP500 was rather significant not only because of the losses but because prices closed below key pivot points. A close below support defines a down trend, and old support becomes new resistance. In addition and as the data will show, closes below key pivot points can lead to fairly significant losses.
Figure 1 is a weekly chart of the SP500 with key pivot points noted by the red dots. Last week’s price action saw a weekly closely below a prior key pivot point (see gray oval on chart). Since 1991, there have been 41 key pivot points in the SP500, and there have been 17 times when price closed below a prior key pivot point. Obviously, not all closes below a prior key pivot are ominous as can be seen by the price action from August, 2010. It was looking bad for equities, but then Helicopter Ben saved the day with QE2. Of course, this fake out led to a significant bull run.
Figure 1. SP500/ weekly
But back to my point and my concern. Of the 17 closes below prior key pivots, there have been 7 times when the market (i.e., SP500) kept going lower by 10% or more. 4 out of 7 lost more than 15% from the close below a prior key pivot point to the next bottom.
Of course, there have been 10 times when a close below a prior key pivot point was either a fake out (August, 2010) or led to only mild losses (before prices bottomed and reversed). So how will I know which scenario we are dealing with? If prices close back above resistance (old support) levels, then the trend will have gone from down to up and this whole past week was one gigantic fake out.
From this perspective, there is no reason to get long equities until this level (i.e., the new resistance or old support) is breached to the upside or sentiment turns more extreme. It is not worth the risk. This isn’t the time to hope. This is the time to take some action to protect yourself and your money.
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This is a horrible movie! You know the line from the "American President" when Robin McCall: I think the important thing is not to make it look like we're panicking.
President Andrew Shepherd: See, and I think the important thing is actually not to BE panicking. Well every time some government bozo or economics clown or wildman from omaha opens their stupid mouth they ALL look like they are panicking. I just wish they would all SHUT THE FUCK UP!
IQ 145
I am trying to decide where the decimal point should be..
IQ 14.5 or IQ 1.45 or IQ .145
Spot on IQ, spot on.
But what about the pivot points?!! ha-ha & mumbo-jumbo & lots of hot licks. Oh, did I mention that as always the report is FREE?
The worst kind of meaningless crap in the world. The name of the game is futures. you don't drive by looking in your rear-view mirror and you don't trade by admiring some largely mythical story about your frigging "proprietary indicator"; and what happened last year. When the charts show that the market is grossly overbought, and over a period of months it never makes any new highs, then you can sell the top of a rally. This is contrarian trading and this is how money is made. These newsletter writters who want to sound wise about bearish shit after the market has gone down all week are completely retarded. I told you right here on this blog to sell the DJIA at 12,700; the day and hour when I did. The people who know what they're doing have already taken their profits and are moving on to the next thing. Never, ever, read newsletters; they're toxic waste.
Hey IQ 145:
Get the record straight and look at my other posts on this blog before you act like an idiot. The track record stands for itself. Check it out! But I am sure you won't because it is easier pretending that you do your homework.
Good riddens!
So, will you kindly let us know when to buy, or when to dump our shorts?
Zealllc has annualized realized gains of 50% since roughly 2001.
Just sayin'.
I don't believe it. all the newsletter writers do the same shit; if you cherry pick and look in the rear view mirror enough you can find statistics to support global warming; which simply doesn't exist. I'll believe it when I see his audited tax returns and not before then.
Review mirrors are just that. You got to love the idea: Potential for a Bear Market. How about a new topic and chart.
"Potential for a Great Depression" and charts from the 20's, 30's vs. Now.