Daily update 10/10

Smack!  I wrote last night " I am sure the selling urgency will pick up on a solid break below the recent lows.  Probably all the way down to strong support at 2800."  Of course I did not expect that to happen in one day.  In Daily update 7/25 I wrote "The rally since July 9 has been very thin.  The market is going to have to broaden out in order for SPX to break out and make a sustained move higher.  If it does not do that then the move up from July 9 will likely get retraced in the weeks ahead."  Mission accomplished (only it was months instead of weeks).  The 7/9 close was 2784.  Today the close was 2785.  The market kept going up for a quite a while, but never got any strength behind it.

The break out over the Jan. high clearly failed today.  This creates a massive bull market top looking structure with all the divergences normally present at such a top.  Breadth was -86%.  New highs were 33 while new lows spiked up to 479.

The market close did not stop the futures from going down.  Hard to say where they will be in the morning. 

The red count finally got to oversold.  However, the intermediate indicator dropped below 50.  This is unlikely to be a quick drop and back to new highs.

Yesterday my wife was telling me about a story her father saw about 3 democratic billionaires promising to do whatever it takes to get democrats elected in the upcoming election.  One way to do that might be to crash the market.  Now maybe today's big splat was just a coincidence and maybe not.  I bring this up because if there is a concerted effort to crash the market we can't expect much of a rebound here in the short term.  True crashes happen when the market gets oversold and keeps going down.  In that scenario SPX is likely to crash on through the 200 DMA and then things will really get nasty.  This could have been just a normal market move from breaking below the Jan. high and running some stops.  In that case the area of the 200 DMA should provide support for a bounce. 

While the pundits are saying how strong the economy is the reality is there are some cracks.  The auto and housing sectors are clearly showing some weakness.  Those are important sectors and interest rate sensitive.  The bulls said for years not to fight the FED, but being bullish now is doing exactly that.  The FED is raising rates and pulling $50 billion a month out of the financial system.  Today's market reaction may be a result of the drying up of liquidity.  Breaking the Feb. low will confirm the top structure.  That could cause a cascade lower.  Based on what I have been observing in the market over the last six months I think they might have rang the bell for the top today.  The global economy is clearly slowing.  The IMF just downgraded their growth projections yesterday.  Global stock markets have already reflected that.  It is not out of the question that a bear market is starting.  That reminds me of a saying from a very wise investor.  There is no law that says you have to be 100 percent invested in stocks all the time.  John Hussman says it is better to panic before everybody else does.

Bob