On the S&P we have 860, then 840 (the lows earlier this month) and then if that does not hold we look destined to revisit the lows of 2002 which appear to be the 770s. What you can see from this chart is what took 5 years to create, took 1 year to destroy. Fear v Greed. It seems almost certain now considering no one but daytraders even try the long side anymore because a hedge fund can blow up and take the entire market down 3% in a matter of 30 minutes. And it can happen at any moment. What's disconcerting is one could construe a move to the mid 800s as a triple bottom (if you believe we retested and formed a double bottom 4 days after we made the low Oct 10th) Triple bottoms almost never end well. You can also see as bad as 2001-2002 was, and those of us who lived it were disgusted by it, we never had a move of this magnitude without any short term rebound during that period. Those horrific drops during that time frame, always followed up with some sort of hectic bounce. This time we are getting nothing or at most 1 day bounces that are erased immediately - back then it was multi week and even multi month bounces. So that era was more stair step - this is like an elevator. (unless you were a tech stock investor i.e. NASDAQ - back then - it was an elevator - but now we're talking the whole market, not just tech stocks)
If things really spin out of control (as if they have not already) we have some support in the 650s-680s from 96 era; and if that does not hold mid 400s from 1994. Mid 400s is obviously almost a 50% drop from today's low.
The big difference from 1987 is companies were in there buying their own stock hand over fist. Now companies are hoarding cash afraid of lack of access to credit, which not only hurts buybacks but hurts any chances of a slew of takeovers. I suppose if we drop the 400s, those countries with cash (hi China) can come in with direct cash infusions and pretty much buy up the rest of the U.S. they don't already own.
I am hoping this dire posts marks a self capitulation as I mentally throw in the towel and talk about S&P 450 :) But just from a technical standpoint - it looks scary.
So 860, 840 and then 770 to deal with first. Then we exit the 2000s and return to the 1990s.
2 comments:
I have a homemade simplistic technical analysis that says S&P 770 is quite possible, but 450 is pretty much out of the questions.
If you do a least squares fit of the monthly S&P closing price (using the log of the price) going back to 1950 and then look at the standard deviation of the closing price from the fit, it seems we are now about 1.5 standard deviations below the fit. So, that would say that we should move up from here, but markets always overshoot the mean (both to the upside and the downside). For example, in July 1982 the market was 2.5 standard deviations above the mean, and in March 2000 it was 2.5 standard deviations above it. So, if today we went instantly to 2.5 standard deviations below the mean, S&P would be around 710. Yikes. Maybe a more likely scenario is that we bounce aroudn for a while and then bottom out in October 2009 at 2.5 standard deviations below the historical mean, which would be about 760 then. Or, if we follow a 17 year peak to trough cycle as in the past, the S&P could just bounce around the 900 level until 2017, when it then would be 2.5 standard deviations below the mean. What an unpleasant scenario!
If I *knew* 770 was the bottom I would not be that concerned - we were at 860 today so thats only 90 points to go. 10% more. That would be a 50% drop from Oct 2008 highs of course but better to get it over with.
I'd just like to know if that is indeed the ultimate bottom and if could tell me the exact day it happens I'd appreciate it as well ;)
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