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Get Ready

Published on October 4, 2011

Get Ready

October 4, 2011

Yesterday was second consecutive 90% down days, another “down days pair”  just after a week. Mind it, this “Down day pair” i.e. two 90% down days consecutively is a rare event which indicates oversold state of the markets. In the normal days, a 90% down day is followed by 2-7days of technical rebound. Albeit, ever since markets started pulling back from recent high in July, yesterday was 13th 90% down day as opposed to 6 bullish 90% up days. That’s lot of volatility for such a short period! For S&P500, Average True Range (ATR) for the past 21 days is almost 31 points!! roughly double of what it used to be before July’11. When measured via Historical volatility (HV), results are no different.

After yesterday’s closing both Dow Industrial and Dow Transports closed at 52wks low. Russell 2,000 and S&P500 were no better. Both Russell 2000 and Dow Transports are in “bear market” as per classical 20% definition. At the same time, VIX has shot-up from higher teens to 45.45. The only hope for “bulls” is Nasdaq-100 which has not yet fallen and closed below Aug lows.

We are at crossroads. Next 2-3days are going to determine which direction stock markets are heading. If all the major markets close below Aug lows, we are most likely heading towards (short-term) 10K on Dow, 1,050 on S&P500, about 2000-1975 on NDX.

I am biased and think that we are about to see sharp downward move. However, there is also possibility that markets may rebound from preceding lows to rally again to the channel high. Though there are lot of good opportunities emerging, don’t take unnecessary risk; and stay focused on capital preservation while continuously harnessing emerging opportunities.

I hope you benefited from Gold’s rise from the key support levels I mentioned in the FREE post here.

Even though broader markets are tumbling,  OP Income Newsletter is nicely up for the October month 2011. While we are invested for October, we shall shortly start our Nov month portfolios. If you would like to join OP Income Newsletter, pls click here.

Profitable Trading, OP

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