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Wednesday, October 15, 2014

Daily update 10/15

Odd day.  There was enough up and down action to make one dizzy.  Here is the daily SPX chart.

SPX did not quite get down to the next support line before bouncing into the close.  There was plenty of volume today.  Some people are calling it capitulation.  Maybe it was, maybe it wasn't.  The selling suddenly stopped mid day and dip buyers drove the car in the afternoon.  You can find similar days that mark important bottoms and others that don't.  The jury is still out on that.  There were 626 new lows which is the most we have had since 2011.  The price pattern kind of looks similar to then also.  Lets see what the futures are doing.

There are a couple of long tails there on the downside as the dip buyers stepped in to buy.  Right after the close the futures tanked about 10 points probably on some earnings news.  We are still in a runaway down move at the moment.  It might not be the best idea to be a hero on the long side just yet.  This could just keep right on tumbling down.  If the market does manage to put a bounce together there likely would be resistance at the 200 DMA.

I heard them saying on TV today the last 15 days might have been the worst for hedge funds since 1987.  Why hedge funds get in trouble whenever the market tanks is an interesting question.  Might it be too much leverage.  What good are they as a group?  Hedge funds getting in trouble was one of the first real big warning signs after the 2007 top.  This may be a similar sign of trouble.  They have many billions of dollars under their control.  While they have under performed SPX pretty much this entire bull market this is the first time I have heard of real trouble amongst them.  If I had to guess I would say it is the crash in oil and oil stocks causing the problem.  Massive unwinding of leverage is totally unpredictable.  How much stock do they need to sell to get out of trouble?  Unknowable.  I think it is safe to say the market is going to be unstable for a while with big moves in both directions.  Downside risk is unknowable.  There is a lot of leverage across many markets thanks to the central banks liquidity fixes.  The market has been straight up since late 2012.  It could go straight back down only in a much shorter time frame.  We have never had three bubbles in such close proximity in time in our history.  It looks like the bubble is bursting to me.  Since there is no comparable time in history to look at nobody knows how this will play out. 


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