Saturday, October 4, 2008

Walking in the Woods

Watching out for the bear, for the next few days the markets will be almost exclusively news driven.

The psychology among the players in the financial world is bordering on panic and as a result volatility will remain high. This means the market may make crash-like moves, moves greater than 5%, in either direction, up or down.

The market technicals are oversold and starting to diverge from the price. However, since the primary factors affecting the market at the moment are the lack of liquidity and fear there remains a significant 5% to 10% additional risk to the downside before the current decline stabilizes and tries to reverse.

In this type of market, a delay of 1 or 2 days in the completion of the expected reversal of an indicator can have very negative consequences. For example, the McClellan oscillator is currently at -153, with the 10% index at -545. Normally this would be considered oversold enough to generate bounce but under the current conditions we will probably see the MCO go below -200. The 10% index is again below -500, an indication that regardless of whatever rally occurs in the next month we can expect a retest of the current lows.

SPX Daily - Click to enlarge

Chart oddities. The red down channel was drawn in across the highs. The Cyan down channel is calculated and has a slope equal to 1.382x the slope of the red down channel (marked 1.38 in red to right).

I have a 144-72 TD cycle date for the coming Tuesday.

The white fibonacci intervals to the right are based on the 2003-2008 low to high measure.

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