With the Dow falling 512 points yesterday and the S&P approaching dangerous territory towards the 1,100 mark there has been a sudden call from many investors that perhaps this is the bottom. It could be, but many traders that are taking a more macro view disagree. As I have said before there are many indicators to point to a new ( or rerevealed recession). That understanding plus a dramatic increase on the volatility index coupled with a loss of confidence stemming from the S&P downgrade will over a period of time drive the markets that much lower. Remember the systemic issues plaguing the US and Western Europe have not been dealt, but rather pushed aside and now these issues, which can be summed up with one word…debt are coming home to roost.
S&P 500 As a Crash Indicator
Many people watch the Dow, but in reality the S&P 500 is a much better indicator in telling where we are headed. When the S&P 500 broke the coveted 1250 position investors started to jump out of the market in droves. 1,100 is another important position and falling below it means that the market may go far below the norms, like it did in 2008. With the S&P at 1120.76 odds are it will go below.
Yo Yo Trading
The market has seemed to many like a yo yo in the past week. Last Thursday it fell 600 points. Monday another 500 points and then all of a sudden it went plus 431 on Tuesday only to find itself down another 512 points. The truth is this makes sense in this kind of market. Investors know that there are serious issues on the table and they need to see some sort of action from the Fed and others to indicate a way out of this mess. The more up and down trading expect the market to tank further over a few weeks, even if there is a bounce from time to time.
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