Top Line: Stock market looks like it wants to test the lows set last week. The possibility exists that that test will fail and prices could drop a bit further on this decline...Treasury bonds ended up on the day and VXO was up, too, both confirming the lows in the stock market.
Wednesday's decline, including the 300 points in the final hour of trading, sharpens up the focus on the pattern that exists in the market. As the market was dropping last week, there was truly no where to hide as nearly 90% of stocks hit new 52 week lows last Friday. Today, there were just over 200 stocks that hit new 52 week lows so the intense drop is not showing up in the majority of stocks, at least not yet.
We tried to describe this in earlier posts but maybe this is the best time to try again...last Friday was the Technical low in the market or most likely it was. Now, we are on the way to making the price low in what the Elliott wave would call a fifth wave. Fifth waves are ending waves and are followed by a corrective wave and in this case the direction would be up. When the low in the fifth wave hits we should see another pop like we saw on Monday.
The problem with all of this thinking is that the low price could be quite a ways below where we are now. This last move down could be bone chilling like today's down move was. It seemed as if there was a large leak in the bottom of the boat as the market just collapsed into the close and beyond. Yes, the market continued dropping into the after hours trading and has a large drop planned for Thursday morning. The Asian markets are strongly down this evening as well.
There will be more opportunities to buy over the next few trading sessions. If the market decides to drop through last week's lows, it will feel like the world is coming to an end...which we felt was the event that was in play last week. In any event, the down move may be intense but it will end and the market will roar back.
We should have sold some of our positions on Tuesday morning and we knew it then and we are punished now. Trading is not always the worst thing to do but sitting on your positions and closing your eyes is not a good idea. This market is treacherous and you need a cool head in order to manage your portfolio. That or just put your money in Treasury bills at 0% and go play video games...it's easy to get whipsawed in two in this market. We have been pretty accurate with the market for 2008 until the last ten days...and in that ten days we could have made a fortune if we would have traded properly. That was not to be. We have not offered the best advice over the past two weeks and for this we apologize. We hope that your portfolio has not suffered too much. Today was not good for ours.