Today the Dow Jones Industrial Average opened lower, coming within 50 points of the May 6 “flash crash” low. The S&P 500 actually took out its low from May 6 (see chart).
When examining what happened on May 6, I wrote a blog detailing all the bearish factors in the equities market. The point being that all these factors were sitting there like oily rags in a garage waiting for a match. The bears were claiming a major top was in place and the bulls knew a significant correction was coming before markets could once again rally. Once the market turned down, presumably due to what was going on in Europe, that scenario was in place.
Obviously there were some structural problems with the market that allowed certain securities to basically go to zero. We covered that here.
But I was curious as to what it meant technically so I asked my friend and Futures Magazine contributor Jeff Greenblatt (aka Fibonacciman) what it looked like technically. Jeff commented, “I found that in all cases, major indices and futures markets stopped going down in the right place implying there was universal symmetry.”
I took that to mean that while there may have been structural errors that led the indexes to fall exponentially in that crazy 15-minute period on May 6, they stopped roughly where they should have and where they approximately reached today. As noted previously, even the bulls were expecting a significantly correction, in the 10-12% range. It happened in an instant on May 6 and now it has been confirmed.
What is left to be determined is whether this was simply a correction or the start/resumption of a more significant bear move. I wonder what Fibonacciman thinks?
Tags: Economic outlook, speculators
As I told you a couple of weeks ago, I didn’t go for any of this ‘mistake’ business. The markets stopped going down at a place a good technician would recognize reasonable symmetry. The only problem was Procter and Gamble but that’s another story I’ve already addressed. Technically, these markets are fine and what I mean by that you can trust that they went to wherever they were supposed to and there is no mistake about it.
What they are doing now is another story. Maybe Flash Thursday got us to a destination in a strange way but we are getting the retest I was looking for. We had some good symmetries at the lows, most notably in the SOX and the NQ. It doesn’t surprise me we have a divergence working where the SPX and BKX took out the low but these tech charts did not.
As I’ve written in my weekly column, nothing bad happens when the banks are not leading down. Once again, the banks have been leading down. That could be a bigger problem.