Broken Support; Next Stop 1038
By Barry Ritholtz - January 29th, 2010, 3:05PM
As noted yesterday, the 1080-85 level on the SPX was THE crucial level traders were watching.
The reversal today was telling — despite the strong opening, markets are moderately lower, and that key support level we were watching yesterday is now broken.
My trader Pete notes that a close under 1080 brings 1038 as our next major support level being cautiously watched by most traders. Many of our individual names have been getting stopped out: ACI this morning, and NUAN just now too. (We will revisit them lower)
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January 29th, 2010 at 3:12 pm
You know things are bad when you can’t pull an up day when GDP soars 5.7% (HAHAHAHA).
January 29th, 2010 at 3:29 pm
Thanks for the update.
January 29th, 2010 at 3:29 pm
Oh yeah, this one hell of a “stable” “market” that I want to be in as an “investor” for the long term. Sure, I totally trust that this farce of a thing is legit. I’m sure others feel the same way.
Maybe it’s a good “stable” “market” for “inwestors” though. Sorry, my cash is staying put “on the sidelines”, thank you very much. Real trust and confidence can’t occur in this sham of an environment. It’s that simple.
January 29th, 2010 at 4:23 pm
[...] – S&P 500 crashes through support. Traders had been watching 1080-1085 level. So much for the strong opening. “The reversal today was telling,” FusionIQ CEO Barry Ritholtz says. [...]
January 29th, 2010 at 4:25 pm
gdp, imho, is inventory rebuild, and almost all auto, my local ford dealer in july had 30 new fords, and 30 used trucks………………now, it has a few hundred new fords, and maybe 70 or so used vehicles
it also has big ass signs, flying banners, everything except a clown flagging you down, offering all types of deals with huge signs
January 29th, 2010 at 4:54 pm
Go back to Oct 29th, early July… all the same technical analysts were calling for “support breaks” and big moves to the downside… 943 in Oct, 750 in early July.
What happened?… the opposite.
Now this time… will the blind squirrel find a nut?
Or is this a typical 5-10% pullback from which we likely continue higher, again?
~~~
BR: I don’t know about other technical analysts, but back in September I warned of a 5-15% correction (it was 6.5%).
Now, I am looking for a 10-20% correction.
YMMV
January 29th, 2010 at 4:56 pm
Actually, there even hasn’t been yet an inventory rebuild according to the GDP release. The change in business inventory was still negative in Q4 2009. The destocking just has become slower. Since the second derivative of the inventory goes into the GDP change, this was enough for the large positive contribution to the GDP change.
rc
January 29th, 2010 at 5:56 pm
wow -got deleted. Guess Barry Ain’t put up with no b.s. in terms of off topic posts. My apologies.
So when exactly do equities start following supposed real economic indicators? It’d be interesting to subtract out government expenditures and or any other gov. influence to see a modified gdp indicator.
Wonder what the correlation between the 2 years moving average for gdp and the change in sp500 over the same period of time is?
January 29th, 2010 at 6:36 pm
What happened to the Brown bounce? Geez I was so looking forward to that.
January 29th, 2010 at 6:40 pm
I had ACI, also, and got out this a.m. I also like long range potential and am looking for a spot to get back in.
January 29th, 2010 at 6:57 pm
I guess Cramer and Tan Joe T. were wrong about Apple “skyrocketing higher like AMZN” after earnings?
January 29th, 2010 at 7:06 pm
Maybe the Greeks will come to the rescue.. we could use a few good Spartans.
January 29th, 2010 at 8:46 pm
BR: I don’t know about other technical analysts, but back in September I warned of a 5-15% correction (it was 6.5%).
Now, I am looking for a 10-20% correction.
And 3 weeks ago you were calling for 1200 on the S&P, now 920-1035, , I guess you are covered if we go to 1200 or 1000 in the next couple weeks.
January 29th, 2010 at 8:46 pm
NASDAQ also broke beneath its’ 100-day sma…
However, be warned, I also loaded up with some PSQ right before the bell which usually is a pretty good indicator that there’s going to be a rally next week.
January 29th, 2010 at 10:06 pm
1038 will offer little support. Sure, GDP grew 5.7% but the market had already priced in all that and more. Government stimulus will slow and so will growth. We still expect stocks to test their March lows. If we are lucky they will hold- for now. If we aren’t so lucky we could see the S&P 500 dip into the 500′s. Markets are simply an endless series of overreactions to previous overreactions. We overreacted to the upside, now we’ll witness an overreaction to the bottom. http://jpetervanschaik.googlepages.com
January 29th, 2010 at 11:28 pm
Barry I see your note. At 5-10% correction level I think you are way to bullish. I’m thinking we are going to see things go below book value again and go hard red. My feeling is that we go to 50-70% of book value for the market. I think that’s very reasonable considering what we step into going forward.
January 30th, 2010 at 1:45 am
I like the look of the charting software used at Fusion IQ. It looks as like a classic Kermadec Trench formation.
http://en.wikipedia.org/wiki/Kermadec_Trench
I expect to see a snail fish swim past at any time
http://tvnz.co.nz/national-news/deep-swimmers-caught-camera-3143676
January 30th, 2010 at 2:02 am
why 1038??… seems to me like 1032 area might be better.. not sure where the 38 comes from, though its only a couple of points …
January 30th, 2010 at 5:00 am
fwiw, all these markets are correlated
Leaders, fxi-china, ewz-brazil, started rallying in nov 08……….then india, choose you’re index, next came copper, then oil, the us indexes almost in lock step with europeans.
Now on price and time reverse the order.
China peaked 12 months later and now has a third lower high definitive with accompanying volue. Just choose you’re metric in reverse now.
The news out of china, which you can get out of a dozen sites is not good macro news, and since brazil serves china it’s following. Now, add in India, same issue on macro news.
Crude went up 100% for the year, never a good sign, and couldn’t overtake 85, and this week copper topped on price and volume.
And the dollar is gaining mo.
While the market was flat from nov 15-jan 15, the dollar put in a bottom and has rallieed slow and steady.
Options friday set the stage for a potential tipping point and here we are.
From a big macro perspective, imho, China had xyz infrastructure and new steel and cement plants and utility plants that were just started in 07, as a communist country they had the money too finish projects that might have been shelved or stalled due to financing anywhere else. IMHO, that’s now done, and the credit taps are closing, how well will they be able to do this, anyone’s guess.
The fake out is that technology and software are now like 3 dollar a barrell oil in the 50′s. Those, oh we will control you’re fridge from you’re cell phone to alert you you need milk story you read ten years ago is still a bunch of BS, yet, all manufactureres of any and all products push the envelope every day with cheap chips. And with cheap and cheaper and cheapest chips you’re getting massive use everywhere.
The problem it does not constitute into growth in sales and growth in profits, ala, the Sony DVD conundrum……….
The algebric X of the DVD is it deflating because my generation is emotionally TV and movied out. Heck, I find myself never going to my library of movies now because, ehhhhhhhhhhh, I know within the year some cable channel will play it in roration for two weeks and I know I’ll catch it and enjoy it. The how many more times do you want to hear Stairway To Heaven Syndrome.
IMHO, the game industry is kaput, the gamers are no physically in the job market, they neither have the time or money to game like they did a decade ago. The bulk of there buyers have moved on, and new kids get it all on the inet.
The times they are a changing.
January 30th, 2010 at 9:34 am
BR: I don’t know about other technical analysts, but back in September I warned of a 5-15% correction (it was 6.5%).
Now, I am looking for a 10-20% correction.
reply:
———-
I just looked at a S&P chart covering that period. I don’t see a Sept correction. I see normal oscillation, or what passes for normal in a market such as this one. Back then the fuel was still being pumped at full blast and the hype was dialed to 11. The carry trade was taking off and ‘green shoots’ were the talk of the town.
Today, the fuel is substantially spent, the carry trade is uncertain, the hype is below 10 and appears to be toning down. To the plus, the economy appears to be bottoming, although the universal Fed backstop of everything is being looked at realistically. What happens when a lot of it goes away by 3-31? The uncertainty is whether real organic growth will become obvious? ‘Beat Expectations’ is sounding thin to most now. People appear to be looking at actual financials now.
We’re already at 7% with nothing to power the market up next week in obvious sight. No new hype is in sight. 20% is highly possible if no fuel lights up the market. Beyond that, who knows? It’s way too early to forecast that. The fundamentals, and not magic charts, will control our destiny.
January 30th, 2010 at 12:00 pm
BR: Here is my problem with the “I warned of a 5-15% correction (it was 6.5%)” defense:
The underlying logic is based on things like “support breaks”, so typically it take the first 2, 3, or 5% to even “warn of a 5-15% correction”. Then, lets say its 3% down… you warn… get short. Now a few days later we’re down 6.5%, we look good, and are all happy up 3.5%. But you still warned of a 5-15% correction. I have 8.5% more downside potential and want to stay in my short.
Then bam, 5-days later were up 5%. Hmm. Now I gave up at least the 3.5% I had made to the bottom of the correction. If I held firmly to any of these “breaks”, I have the potential to give up enormous amounts as the trend has just been up.
My point is really simple — its hard to make any money shorting 5-10% corrections on “break” signals of 3-5%. If the market is going to continue upwards, one wants to be buying when the technicals “break” guys are selling. (I was in July, in Oct, and this past week (so far, ouch)).
Better technicals are based on anticipating reversals. Ironically, exactly the opposite of the typical support “break” signals.
January 30th, 2010 at 12:09 pm
IMHO, few if any understand one of the issues how we got here, in mid 70′s interest rates were 15%, yet, inventory levels were 30-40% on average so over the last 30 years with computers, knowledge and worldwide expansion of commerce and shipping, all the money, or a great part of it came from, taking worlwdie ineventories down too 10% and interest rates 5% for companies, or less
now, the law of large numbers kicked in in 2008, euphoria could not be sustained, hey, we tried
this inventory restocking is huge, inventories in 08 got up too 12%, higher than the 10% average, during the crisis they went down too 8%, which causes problems, you run out of one thing while waiting for another too produce whatever, and then estimating how many due you buy in a tight world, overstocking
thus, 10% is the sustainable efficient level for our new world, in the last six months they went from 8% back too 10%, that’s 20% in raw stuff…………..
so now the X of the algebra or calculus or differential equation is last year you had worldwide stimulus and restocking going on at the same time
now the real new world starts with a ton of leverage still on it’s back
thus, that is why chanos thinks china is a bubble about too burst and if it does, mish get’s his deflation, price and time, price and time
January 30th, 2010 at 2:25 pm
Torrie – some nice thoughts on macro, inventory, deflation.
I think you over look the “housing bubble” and excess concentrated investment there as the classic spec bubble and burst. that was the cause and main driver of 05-YE08. Not inventory.
In terms of going forward, agree China is “what to watch” but current bubble prognosticators may be calling the “burst” a little early (which is death, as China is more like an internet bubble than a subprime bubble in that there is massive downside for incorrect shorts, carry and irrationality can move against you much >> than profits.)
Don’t ultra-low interest rates just work in time? US is not Japan, psychologically or demographically. Nor did we have simultaneous stock market and real estate bubbles. Cash is painful at 0-1-3%… while earnings improve, cash on bal sht grows, and SPX pays 2% divs. Imagine what SPX earnings look like when we get an actual recovery?
Resources moving back from real-estate and silly ‘structured’ securities and even commodities to: tech, bio-tech, energy tech, clean tech, and consumer products generally. That looks alot like the 90s when that RE and bond bubble ended.
February 1st, 2010 at 7:16 am
[...] Last week, we warned about key support at 1080-85. That failed the next day, and the thought process is we could see a further correction to 1038. [...]