I agree. Today we had light volume but decidedly to the downside with declines very broad-based. If bids are pulled, stocks will drop. This can go on for some time as we saw in the first bear market in the 70’s. It’s nice to have a big down day a day after I flip my position from bull to bear. We need a bit more on the downside with mediocre rally attempts to confirm this new leg down. On a closing basis we haven’t quite broken the upward SPX trend line; closing about 4 points above it. I think we’ll get there soon.

But: Gold seems to stop its free-fall right at resistance – isn’t that bearish?

April 11 was a big lower trend break for SPY: the day’s high was below the trend line. However, the volume was low and SPY continued upward (this lower trendline support became an upper resistance). It was the high-volume day on May 21 that started the next bear leg.

So maybe we should pay less attention to the trend lines values and more attention to the accompanying volume. Shorting an uptrend is worse than being late to the party on a downtrend (if you know the final destination). Bull, bear, or pig, right?

Today’s action feels like an air pocket: a sudden, sharp drop on light volume and no news, indicating that there are no big funds bidding underneath. Even though SPY saved itself at the end of the day, I think that we have a major warning signal.

I need to study thing over some more, but at the moment, I am anxious for some strength to short into.

Matt

Paul,

Have a look at Fridays daily SPY / SPX / ES bar, it was a narrow range upbar on lower than the previous two days – there’s not much demand in there from the big players. I was a it wary of it considering it was option expiry day, but todays actions now confirms the weakness.

Just my two pence worth.

Regards
Darren

Why the big drop today any way? The finacials started the mornign with good news (UBS).

9:15am
S&P futures vs fair value: +5.2.
Nasdaq futures vs fair value: +9.3

Russia is the only expalnation that I can think of. Any other opinions? If it is Russia, then likely best case looks like they don’t invade Georgia, which is a rather low bar. The market won’t rally off that.

With today’s weakness, I’d give the rally a 30% chance of lasting past this week. I bought some GS puts, but may be a little early. I’m still mostly cash. I’m willing to wait until tomorrow before piling in. If the SPY cloes above today’s high, rally is still kicking, if not than it’s time to load up for October.

It is easy for Europe not to care because the US picks up the slack. However, the way Russia is behaving, it sounds like they also want the cold war back. What happens if they take over all of Georgia and the West lets it slide? Russia willl probably go after all their former republics. Would Europe still be okay with that?

I think Larry is right that this is a Catch-22. I think that the US should swallow its’ pride on this one, and let Russia have South Ossetia and Abkhazia, altough they should intervene (along with an intl force) if Georgia itself is in jeorpardy