Daily update 2/7

Yesterday I wrote:
 "I would expect a gap up tomorrow to get sold into fairly quickly.  On a gap down they might wait a bit to see if there is any follow on buying."

The market gapped down and the sellers held off.  Buyers stepped in, but ran out of steam after a couple of hours.  The sellers won the afternoon with SPX closing near the low.  Breadth was slightly positive.  New highs were a whopping 22.  New lows dropped way down to 47. 

The futures tested above the 200 SMA this morning.  They got above the lower channel line, but failed to stay there.  Ending the day below the lower channel line keeps them in accelerated down move mode.  After the close the futures kept heading south.  They are down over 10 points from the 4 PM close at the moment.

Yesterday's big volume looks like the market should make a bottom around here.  Breaking yesterday's low would crush dip buyers a second time.  That could send SPX down to the 200 DMA.  Some kind of retest of yesterday's low is probably needed to form a bottom.  If the futures remain negative overnight that could happen over the next couple of days.

Baby boomers saw two 50% crashes in less then two decades.  Now they are getting older and have less time to recover from another one.  I have to wonder if this explosion in volatility won't give them a little scare.  That could make some want to dial back on risk somewhat.  The pundits are all in the media talking about how good the fundamentals are and that we should not worry.  The problem is we have the second highest valuations in history (only 2000 higher) combined with the second highest amount of leverage (only 1929 higher). Leverage this high has never unwound in a slow and gentle fashion.  What are the odds it will be different this time?  Leverage is a loaded gun pointed at this market.  I need to figure out when the trigger has been pulled as soon as possible.  I just wish I knew how to do that.

Bob