"The market is about to crater wide open
We are at a point, price-wise, where the sell off may start.
As I said this weekend, I expect today to be a narrow light volume compression day. However, risk increases into the close. Especially tomorrow.
Last Friday, volume significantly expanded on most of the major indices. Together with the facts that we are getting consecutive low Equity PC ratios and increasing retail buying activity in each weekly COT data , this volume expansion implies increasing public interest. I would like to see odd-lot shorting as well as pro-fund ultro long ETF volume readings today. They should be confirming.
I expect a fast powerful sell off. At the moment I am skeptical about its duration however I expect minimum 30-40 SPX points plunge...
This is all part of the big picture, volatility is significantly increasing over all (see the chart I posted this weekend), on that chart, when VIX comes to the pattern conclusion point, the spike will come on a tremendous selling pressure. Why?
Underlying conditions are much worse than Feb 27 now. Both fundamentally and technically. We have considerable erosion in internals and rates are on the rise. There is an extreme inbalance between stocks and bonds at the moment. Sentiment is much more supportive for a serious plunge. And most importantly , some of the investment banks started feeling the effects of the subprime FUBAR.
Remember before Feb 27, they started cratering before the market took the ultimate dump. Today, stocks are more expensive based on their future earnings expectations. S&P is trading approximately at 16 p/e, way higher than long term average forward PE which is 12.
Another factor most may not be aware of is the Yen. It is currently trading near a multidecade channel bottom line which can produce a significant spike. You know it may squeeze a serious liquidity out of the market due to unwinding carry trades.
And finally as you know almost all major indices are trading near the long term channel top lines that can and will put significant distribution on the market.
That first 50 points plunge was the first touch.
On June 14 2007, DSP output of 1 min ticks of NYSE reached to a climax level that usually associated with significant internal tops. We had similar readings before Jan 2004 top.
On the bullish side, inflation is still rampant and we do not know how long the printing house can sustain the liquidity to absorb all these. I have a rough target for USD index. Somewhere around 78, I am not sure we can get there without any bounce from here.
All in all, I believe we are in a topping region in which we will get sharp up and down moves.
This piece is to warn you for the short term. The market may take a fast ride to the pre-expiration lows and beyond in no time. Be careful!
http://xtrends.blogspot.com/
Edited by nimblebear, 20 June 2007 - 04:49 PM.
