Tuesday, February 04, 2014

Another Support Level Broken - Market Busted

There can be no doubt now. This tape is busted. And as the Seahawks have shown, defense wins. Something is really rotten about this market on all levels. Not even the few leaders like CMG & GOOG have held up. For all intents and purposes, nothing is working. How far down we go is not known. Throw out your retracement levels and kiss this baby goodbye. We have not reached that 10% plus level to chalk this down as a bear market yet. But whatever one calls it, the danger is still the same. 

I have been playing defense since the new year began and I'm here to tell you to play even more defense now. The Averages convincingly broke another support level today and no one knows just how far this market is going to fall. All the brave TV talking heads have been wrong and will continue to be wrong as long as they tell YOU to buy. The usual reasons about retracement levels, oversold markets, moving averages, value, "this industry or that industry should do well in this environment," etc., are going to come at you from all directions. There is no free lunch. Ignore the TV hucksters. The red light is on.

I say nothing ventured, nothing lost, until this correction or bear market phase is over. Call this whatever you want. I'm not in the business of losing money and this sell off is chump change so far in terms of the big historic picture. This decline may end soon or it may turn into something very destructive. I want to see how events unfold. The Fed doesn't even know if they are now pulling on the string they may have been pushing. We all need to see more evidence about whether this economy is starting to tank. that goes for China's economy, the various currency crises around the globe and so on.

Here are some rules to abide by until this sell off is over.

1 - Do not chase stocks up Don't get hooked into buying sucker rallies.

2 - Stay in cash unless you are a sharp day trader

3 - Day traders should short into strength. Even then day traders should play small. 

4 - Do not over trade. If you are a trader, trade less or this market will chew you up and spit you out.

Let's look at some charts:

Dow Jones Industrial Day Tic Chart.  Gap up and then death.

S&P 500 Broken Support. Not even the courtesy of a complete head and shoulders pattern was formed. Call it a head and pimple pattern.

S&P 500 Broken Trend line 2 Year Chart One can draw many trend lines on the $SPX chart. One has to start somewhere. So lets start with this broken trend line.

CMG so much for market leaders breaking out. Just like that, pfft, the break out fails

GOOG Another market leader fails. There is no place to hide

AMZN The wipeout continues. You catch the falling knife first. I insist.

Sentiment gets scared, but there is plenty further to go before this market is really scared shitless

$VIX is now up to a level where it and the market has reversed before. The only problem is that it can get much worse as the chart shows.

A big difference between a bull market and a bear market is that it is easier to make money in a bull market because human nature makes it easier for people to want to buy stocks. Thus every time the market rallies, people want to buy stocks before they miss the boat. As Joe Granville used to say, that is the hook. If people love CMG and see it start to snap back hard, they do not want to miss the boat. So they buy and then watch in shock as their stock suddenly collapses and liquidity dries up. Before they know what hit them, its too late. I saw that with ADEP today when it broke out and then failed. I almost saw this with FB today too.  And FB is just about the only market leader that is still holding up - so far.

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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