May 2010 v February 2010

May 2010 v March 2009

As I was saying in winter 2009, if you are a reversion to mean investor you have to watch these rubber bands being pulled farther and farther from their static levels. Back then I was using a completely different measure which was how far below the 200 day moving average the S&P 500 had fallen to - of course that was history of a different sort (we reached a never before seen 40% divergence at the worst in March 09).
The reversal should be quite strong even if it's short term in nature but those who piled in yesterday anticipating the bounce are suffering thus far based on yesterday's close and the early action. Still looking for the same conditions mentioned almost daily (emotion, reversal, blah blah), but we are definitely pulling the rubber band sharply and like the Euro, even if downside continues in the intermediate term a short term relief bounce would not appear "too far" away.
S&P levels to watch today are the flash crash low of 1066, and then February 2010 lows of 1045. Assuming the flash crash did not happen, the lower of the 2 "gaps" creating by the rallies in February would have filled yesterday. This is also the first >10% correction since March 2009, as we're sitting at 12% on the S&P 500.
