Prepared by the good people at Random Walk, LLC. (and Scott)
Closing Prices From Yesterday
Kaboom Part III
It was an amazingly shocking day to most traders. It is hard to catch this many seasoned traders off guard, and I admit I was caught too. I would have bet most anything that after Wednesday’s run up there was NO WAY we would have fallen 2.07% in the SPX the next day. The speed at which we climbed after the Fed announced was indicative of massive short covering, and an indication that the path of least resistance was obviously to the upside.
But the biggest rally higher of the year was followed by an equally nasty drop. Mario Draghi of the IMF was the cause of this one. He essentially said he would ease if the politicians did economic reform. But since the politicians in Europe are obviously not going to do that, it was taken for granted/implied that he was not going to add any stimulus.
That sent things spiraling down 100 points (Dow) where we sat, and would 9 out 10 times bounce. When we didn’t bounce the stress and confusion from the previous days obviously had traders worn out emotionally and many took their chips off the table.
Oil was down $2 during the day, and is down again in the after hours markets having gone through the MAJOR support of 85.60.
I am NOT a big fan of charts, but I have to admit that they are relevant on BIG numbers as there is a self-fulling prophecy component to them. The above one is the best road map I can think of to predict today’s movement.
1 – 1925 SPX
Above you see that we have made HUGE lows at 1925. The first was on 10-2-2014. The second was at 1,926 on Tuesday. Yesterday we closed at 1,928. It is OBVIOUS traders are looking at this as a probably bottom and buying there.
2 – 1904 SPX
Should we go through that “triple bottom” it is clear sailing to 1904.
NOTICE how we bounced off of that which was the 100 day moving average back on August 7th. That exact point is now the 200-day moving average. It is there that I would love to see the market go to. WHY?
A – We have on in POT a condor that makes the most at 1905 in three different expirations, one of which expires tomorrow. We make $17K alone in the front month expiration.
B – Volatility will likely peak above 20% and I will let a ton of it fly in POT.
C – It would be about 5.7% off the highs, which is more than the 4% corrections we have been averaging in the post 2009 banking crisis. That would have people scared, talking about a 10% move, and probably a bottom. The SPX highs were 2019.26.
D – It would be the bottom of the channel we have been in for the last 3 years, and more indication that we are going to bounce from there.
If we go through that it is obvious that the next psychological support would be 1900. If we break that, this thing is DONE.