Tonight's Commentary by Mike Reed
On Friday we were looking to short early strength, and stated that nothing good could happen unless the initial resistance at the 1494.00-1494.75 zone was broken, and held.They poked just over that zone to 1495.50, and quicklybacked off, and the first sharp drop was underway. The first drop went further than anticipated, but it wasn't a shock.
After dropping to 1468.50 on the SP futures, the market rallied back in ragged fashion, but formed another bearish pattern. After reaching 1488.00 on the SP futures, they pulled back to 1480.00 and then formed a little slinky pattern. From the apex at 1483.00, the SP futures rolled over with 30 minutes left in stock trading and dropped 25.50 points in the last 45 minutes as only the 4:15 pm settlement could stop the bleeding.
When most everyone was bullish a little over a week ago, we were avoiding longs and even had a swing trade on the shortside. This sell off was well overdue, and for the most part, shorting the rallies as soon as the move fizzled (mostly at resistance zones) offered the better reward / risk setups.
From the intraday highs on July 16th and 17th, the Dow has given up 756 points, the SP500 cash has fallen 97 points, the SP futures dropped 108.50 points, and the Nasdaq futures lost 110.25 points. That has happened in just 8 trading days, AND from record highs on the Dow and SP500. That's what makes *this* hard selloff different from the others. New record highs, then BAM.
That happened in 1987 and 2000. If this is nothing more than just profit taking to give the bulls a good entry on the long side, I'll eat my hat. Needless to say, the market is very oversold. My daily indicators have rarely been this oversold. They have only been this extreme a few times, while the SP500 was being cut in half from 1552 to 776. In addition, the VIX jumped another 16+% on Friday, putting it way past extreme territory. Along with that, there is potential price symmetry down here too.
From 2-22-07 to 03-14-07 the SP500 cash fell 97.59 points. So far it has lost 96.95 points since the 7-16-07 intraday high, which is almost the same amount of points as the last big drop. An equal drop would take the SP500 cash down to 1458.31. (read more at TradeStalker.com)
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