970 Broke, Leading to Another Leg Down

I noted the following yesterday –

“The S&P tried to find support the last two days at 970. That level had better hold, or the markets will start yet another leg down”

Here is the chart from yesterday, updated for today’s action. 970 got taken out and the S&P 500 did a nosedive into the close, falling about 60 points (-6.2%) in the last 90 minutes of trading.


I also noted the following yesterday –

“Sellers continue to swamp buyers and the markets continue to sell off hard into the close each day as mutual funds sell to cover what are no doubt massive redemptions.”

This is classic Bear Market action. I think we are in the “capitulation” stage, where people wake up at night in cold sweats and sell because they just can’t take it any more. The last few days of selling are always nose dives. So it can be so very costly if you are even just a few days early. That is why I want to only buy on a low risk set up.

You will not want to buy at the end of a Bear Market or a selling panic. It is human nature. My goal with this blog is to get a continuous commentary going to let you know how the markets evolve and how those internal changes in the markets will tell you when it is time to be buying and not selling.

As the markets were topping last year, I went through the changes with clients in great detail and we were able to take defensive measures to protect capital. Some chose not to sell. I am sure that they will listen next time...

I can now buy the markets at a 37% discount to a year ago. Are you kidding me? Those who raised cash in late 2007 and the first half of 2008 are now years ahead of the game. Those who didn’t may have to delay retirement for a few years.

I think people grasp onto the “buy and hold” mantra because they have not found how to determine when it is time to be buying and time to be selling. Just as the markets gave a lot of clues as they topped, they will also give lots of clues as they bottom. My goal is to keep you informed, so that you are interested in buying what big money is buying, even though the idiots on TV are telling you to sell – just as they were telling you to buy the first 4,000 points down on the Dow! Remember, “Buy low and sell high”.

I did zero trades today. Then I went home and took a long nap. I am exhausted. Interpreting this intra-day volatility is hard work. Even with the hard work, I may still miss the low and not be able to trade whatever bounce we get. My concern now is that the next rally may only carry up to 970 on the S&P 500.