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Wednesday, August 26, 2015

Daily update 8/26 Unprecedented decline

The bulls pulled off a bounce day.

SPY had nearly a $7 range and it still was an inside day.  Unusual to say the least.  The breadth was +77%.  Nothing special considering SPX was up nearly 4%.  New highs came in at 2 again.    New lows were close to yesterday's number at 240.

The futures have formed a pretty clear resistance area.  They are currently near the top of the range.  Who knows where they will be by morning.  The bulls sure have been busy pumping up the futures overnight.  Is that so they can dump during the day into the strength?  This could be a short term bottom or just a consolidation before going lower.  It is not clear which it is yet.

They seemed to be really cheering the big up day on TV.  Some were proclaiming a bottom.  I don't know how anybody could do that in good conscience.  SPX did not even get above yesterday's high.  We have had back to back inside days.  Forming a bottom is about price discovery so inside days are rarely seen at them.  I am not saying this can't be a bottom, but the market needs to prove itself.  I would rather see a probe to new lows then reverse.  Rallying from here seems more likely to roll over quickly. 

According to Telechart there were only 15% of stocks above their 200 SMAs yesterday.  That is a very extreme reading.  In the last 30 years it only happened in 1987, 1990, 2002, 2008, and 2011.  None of those instances were V bottoms that rushed back to new highs.  If we continue to rally from here we are very likely to be back near these lows again in the weeks ahead. 

The mini meltdown was unprecedented in how close it started from the high.  This is an interesting look at prior big collapses.  Indicator of the Week: Why This Volatility Signal Conjures Up Memories of 1987

Three Straight 2% Down Days: For the first time since 2002, the S&P 500 suffered three straight down days of 2% or more. This has happened 13 other times since we have data on the index (since 1928). Below is a complete list of those occurrences, along with some other stats. You can see the large majority of them occurred during the Great Depression, so I’m not sure how relative those are to the recent signal since, at least as of now, we’re not in a depression. 

This table shows the other times it happened.

As you can see most of the time the market had already been down a considerable amount.  1987 was the only other time SPX was down less then 10% at the time.   This was an unprecedented bout of volatility.   In looking over the dates in the table I noticed the smallest total decline from the top was the crash of 87.  I don't think this was just a blip and it is a return to the bull market.  Maybe they just rang the bell.


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