Friday, January 24, 2014

Market On The Ropes: Asian Contagion Trumps Manic Depression

The words of a dead paratrooper:

"Manic Depression's touching my soul,
I know what I want,
but I just don't know how to go about getting it."

The bumpy ride continues, but the bumps have started to intensify. This time the market is really on the ropes. Yesterday the market got whacked on news of financial turmoil in China. We don't know exactly what is going on in China, but something is amiss. So it was shoot first and ask questions later. This morning the Asian markets are all selling off and there is all kinds of talk about currency crises in Argentina and Turkey. Hence, the futures are down again. This looks like a chance for the markets to have another garden variety correction. Here are some charts of our major indexes:

S&P 500 one year: Extended and due to at least correct. Testing support at the bottom of the tight volatility squeeze today.

S&P 500 three years: Even more extended with decelerating power. 

NASDAQ 100 one year: The strongest of the indexes had popped out of its volatility squeeze to new highs and now appears ready to fall back.

NASDAQ 100 three years See S&P 500 three years.


NASDAQ Comp Tic Chart As one can see, the large cap Dow stocks got hit worst and came back the least during the late day bounce. In contrast the NASDAQ 100, the true index of innovation and growth, got hit the least and came back the most. Perhaps we can chalk this up to the new growth leaders being less susceptible to the negative affects of world wide economic havoc. Or maybe this is the beginning of something bigger and a sign of a market in denial, going down kicking and screaming.

$VIX Like most other measures of sentiment, the $VIX barely budged and is still saying that market players are not scared. This is not good.

I tightened my belt yesterday, narrowing my long exposure down to BIIB and RDN - plus a little BDSI after the close on an FDA approval. These stocks had better behave today or I will sell them too. I also made many day trades shorting $SPY, $NFLX, scalping post earnings release MSFT & covering my $IBM short into the open. I gave up one half of my IBM gains due to it's uncanny resilience. It was a battle to stay afloat as I pared down losses in what few other stocks I was holding.

We shall see how this gap down open fairs during the day. Will bottom fishers come in, or will sellers finally capitulate and break market support? In my opinion the market deserves to sell off for a while. A 4% - 7% correction is nothing new in this market run. Perhaps worse.

In sum, Its hard to short a market that has gapped down so far. Maybe the bottom fishers will try to save us again. In my opinion something seems different this time. Therefore, it is better to batten down the hatches until the storm is over. That means paring down core holdings and day trading as opportunities present themselves. I would hate to triage and let BIIB go, because it closed up so strong yesterday and looks like it is headed to $125 - $130. But I am fast and can get back in turning on a dime.

For longer term players that is another story, but don't buy into the healthy correction spiel
that the TV talking heads are spouting. Maybe its healthy for the market, but not for your wallet. And one just does not know how much damage can be done to your finances until this selling abates.

BIG Capital Advisors and Seaview Partners are not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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