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There’s the Market Breakdown!
www.oneoption.com
The warning signs have been building and sellers are taking control.
PRE-OPEN MARKET COMMENTS FRIDAY – Since December you have been hearing me clamor about a global undertow that is making its way to the US. That message has been received and Asset Managers are reducing risk. Cash levels are at lows not seen since 2010 and this move could gain momentum.
In the early stages of a trend reversal the price action will be stubborn. Asset Managers have been conditioned to buy dips and some will keep trying. With low cash levels, I doubt the bounces will be very tall and they won’t last long. There’s no one left with “dry powder”.
In the past, a market drop to the 100-day MA would have attracted buyers and we would have seen a bounce yesterday. I certainly thought that was possible after a few tests. Instead, sellers broke horizontal support and we saw a nasty decline late Thursday. Overnight markets were down considerably in Asia and Europe. That will provide a still headwind for the market today.
We are likely to test the downside today. Trade what is in front of you. I still like the short side, but I would tread cautiously. Take short positions, add when you have strong selling and be willing to pull the plug if the market stages a big bounce. I am not worried about one or two long M5 candles. A more dangerous pattern is a steady stream of normal sized green candles. That is a sign of persistent buying. We won’t know when that is going to surface, we just need to be aware of it and that price action will signal that buyers are fairly aggressive and that a bounce is coming.
For today, focus on stocks that are trending lower, but that have not gotten crushed this week. They will be trying to catch up to the overall market drop.
From a swing standpoint, our best set-up will come on a failed bounce. Ideally we get that Monday and Tuesday. That would set the table for more selling on weak economic numbers Wed – Fri.
Resistance is at the 100-day MA. That feels weird to say… it’s been a while. Support is the 200-day MA.
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