Tuesday, August 2, 2011

Brutal Tuesday.

It was brutal today. A classic case of “sell the news”. The bad news continues to come from Europe. Spanish and Italian bonds are on fire. The prime Minister of Spain has canceled his vacation to monitor the debt situation in the country.

So is the bear market is upon us or is it a regular correction? While the possibility exist that the SPX is rolling over in a new cyclical bear market, I think it is still early for such an event. In my blog writing in June, I have mentioned two points to indicate that the selling is not over. First point was VIX or VXO. Historically, unless the fear factor is in high 20s, we cannot consider a bottom. Second point is that in all corrections, the SPX has ended near 0.95 % of its 200 DMA. We are not there yet.
From the top of 1368 in SPX a 10% correction will bring it back to 1230 level. So unless we go down below that level, I would still consider this sell-off as a bull market correction.

Anxiety is high now and economic numbers are bad. But price actions always drive the news flow.  Things always look bad after a market sell-off.  When markets are up, financial media as well as traders highlight the good things and even bad economic data gets a good spin. So the way the market feels now, almost on the verge of plunging, it is typical of bottoming. Throughout this sell-off I have been adding to my position. I could very well be wrong but there is no catalyst yet for a panic sell off. We cannot say for sure when a market will bottom, but we can say when it ought to be.

Everything is so massively oversold that a rally should be round the corner. I was hoping it would bottom today or tomorrow and market action indicates that a bottom and a reversal are possible tomorrow. A massive rally, like 27th June could materialize out of nowhere and kill all the bear shorts. 

Market always inflict maximum pain on maximum number of people.