Wow, here we are back at 1080 — lets see if it holds . . .

My prior best guess at how this played out was a break of 1080, a rally back to the prior range, and then a drop toward 1038 or so.

I was surprised how far that oversold snap back went over 2 days, but we are right back to highly watched key levels again.

>

Previously:
Watch 1085 on SPX (January 28th, 2010)
http://www.ritholtz.com/blog/2010/01/watch-1085-on-spx/

Broken Support; Next Stop 1038 (January 29th, 2010)
http://www.ritholtz.com/blog/2010/01/broken-support-next-stop-1038/

Key Break Playbook (February 1st, 2010)
http://www.ritholtz.com/blog/2010/02/key-break-playbook/

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

42 Responses to “Look Out Below”

  1. monmick says:

    Not sure whether you are referring to the S&P or the price of gold! I guess it could be either, or both…

  2. catman says:

    Mr. Obvious observes that recent earnings beats from Intc Msft and now csco have all been greeted with either yawns or pratfalls. Meanwhile talk on the street is that big tech is the place to be. What’s up with that?

  3. Mr.E. says:

    Keep an eye on the Friday-Monday gap closure on the index ETF’s with support just below at the Friday low.

  4. Mannwich says:

    It’s all good. So says cognos.

  5. torrie-amos says:

    looks like a 90% down day, after 4 – 80-20% since new year this does not portend well, bears ain’t that short, longs trapped from last two days buying

  6. torrie-amos says:

    dollar breakaway gap will tell the storey, surprised crap out of me, i expected a dollar melt up not a runaway gap

  7. Mannwich says:

    The Recoveryless Recovery rolls onward (and with faulty breaks).

  8. torrie-amos says:

    russell broke major support line, that is very bad

  9. Mannwich says:

    I mean, “brakes”…….(although I suppose the word “breaks” could be used too?)

  10. ella says:

    Not sure what effect this will have on the markets but CNBC has not mentioned the Italy seizure today. Could this be a pattern of governments walking away from derivative contacts when the governments are losing money? Deleveraging the old fashion way by refusing to pay your debts. First China and now Italy.

    “But as Janet Tavakoli noted in January, Chinese banks already walked away from derivatives contracts last year:

    In early November [2008], Chinese banks (top tier banks like Bank of China and Industrial and Commercial Bank of China) refused to fork over billions in collateral on dollar/yen FX trades which were out of the money after the yen’s October appreciation. The headlines should have read (but didn’t): “Chinese Banks say: STUFF IT.” The Chinese banks won a game of drag race “chicken” with foreign banks. Most credit support annex agreements would say that closing out these trades would be an event of default, and then the cross default on all the trades would kick in with the same counterparty. But the credit of the Chinese banks was better than many of their counterparties, and they renegotiated contracts with the Chinese banks.” http://www.georgewashington2.blogspot.com/2009/10/china-has-already-walked-away-from.html

    According to the Economist it looks like China is threatening to walk away from more… http://www.economist.com/displayStory.cfm?story_id=14365060

    On Italy…

    “Italy’s financial police are seizing 73.3 million euros ($102 million) of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia. ”

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aWJC2mYeMKqg&pos=5

    Maybe our various state and local governments should look at doing the same.

  11. Mr.E. says:

    “Keep an eye on the Friday-Monday gap closure on the index ETF’s with support just below at the Friday low”

    Should have added – expect market to finish in the 1080-1085 range for the day.

  12. torrie-amos says:

    xlf at critical support if it goes, watch out folks 14 even long term support line

  13. torrie-amos says:

    ella, very interesting, states telling banks to go pound salt, who woulda thought, since they need money i guess they can go take it, lol

  14. Mannwich says:

    I think a lot of folks are going to be telling the banks to “go pound salt” in the coming months/years.

  15. wally says:

    Out of curiosity, when was the last ‘circuit breaker’ day?

  16. Mr.E. says:

    wally, 10/27/97

    First trigger is a 10% drop in DJIA before 2:00 pm

  17. Mannwich says:

    I hope BR and other bulls had their stops set tightly.

  18. Renting in Mass says:

    I feel like I’ve got a great money making idea. Explain to me how I’m wrong :)

    Doesn’t it seem like a good bet that the VIX will increase dramatically at some point (beyond the 16% so far today). It’s essentially a measure of belief in upcoming volatility, right? Which is essential a measure of current fear. I’m sure we’ve got a few more scary episodes in our future. Why shouldn’t I buy some VIX at 25? If things get even half as scary as fall of ’08 it goes to at least 50.

  19. Sentance says:

    Ella et al,

    Re the Italian derivatives. The Financial Police are investigating whether there was criminal misrepresentation when the derivatives were sold. So it’s more about fraud than the Italians simply walking away from a losing position.

  20. Gold: It’s just a flesh wound!

    For those gold bulls and bugs under their desks right now, this is what it usually does in February:

    http://spectrumcommodities.com/education/commodity/charts/gc.html

  21. CDizzle says:

    To Renting in Mass:

    What vehicle would you use to buy the VIX? The VXX ETF does not mirror .VIX movement.

    Thanks.

  22. Mannwich says:

    @Renting: In our “Opposite World” of make-believe over the last 10 months, that common sense play wouldn’t work. If that delusional make-believe world is coming to an end, however, it just might work.

  23. torrie-amos says:

    renting, imho, it’s each man or women for himself, fwiw, i hate trading things i’m unfamiliar with, unless you use a simple plan, personally i have no idea what would be the correct vix product or strategies

  24. cognos says:

    So… everything looks really bad, everyone is afraid.

    Are you buying or selling?

  25. Renting in Mass says:

    “If that delusional make-believe world is coming to an end, however, it just might work.”

    It’s got to end eventually, right? Right?

    “What vehicle would you use to buy the VIX? The VXX ETF does not mirror .VIX movement.”

    Yeah, I guess that’s the catch. Somebody needs to create an ultralong VIX ETF.

  26. ella says:

    True, fraud is being investigated…. But how broad a net is cast after the fact defines the fraud instead of the application at the time of the contracts. This can be used by US federal and local governments to achieve the same…. walk away form the contracts. Indeed they should be looking at this NOW.

    Next, Fannie, Freddie, FHA and other insurers are demanding that the banks who sponsored certain MBS’s take them back for various reasons including poor underwriting. Guess what the banks are taking them back.

    Looks like debt is being shifted around from the public back to the private business from where it originated and I wonder the effect on the markets.

    Next we have many article about how the housing stimulus and support for the real estate market is being withdrawn in the next few months. Hmm, what happens then?

    Now we have the Eurozone sovereign debt crises amid what could become private debt crises. What happens to mark to model???

    Our we see an unwind of the dollar carry trade? What losses will this cause?

  27. ella says:

    Our we see an unwind of the dollar carry trade? Should be Are we seeing. ..

    Time to leave the keyboard…

  28. Daffyorbugs says:

    You can buy options on the vix index through any brokerage.

  29. forester_dude says:

    Well, it looks like our friends at CNBC might have to dust off those DOW10000 hats again…:-)

  30. nsambol says:

    Surprised at the fairly light volume today. Don’t think the average “Joe” has figured out that the party is over. Perhaps when DJ moves below 10k. That should raise some eyebrows.

  31. Are you buying or selling?

    Buying. I picked up some more gold shares today so now my base desired position is almost built

    You can buy options on the vix index through any brokerage.

    Unfortunately, they are European style options so they don’t really track the VIX very well unless they are front month. With front month you are really gambling

  32. Daffyorbugs says:

    My options are American style and can be bought and sold at any time.

  33. torrie-amos says:

    i’m essentially flat, with dollar in a breakaway gap, china and brazil in downtrends, they led us up, they can lead us down

    gotta love fed bs, now dudley says, ehhhhhhhhh, we may buy mbs after when we said we wouldn’t, lol, right at the apex of the down-thrust, like these guys don’t know market timing

    ben too tim, can you believe chanos gaul today, god those cnbc folks need there heads examined

  34. Mr.E. says:

    My suspicion is that we’ve seen the broad market low for the day and the week, and that tomorrow we could get back to yesterdays low on the S&P.

  35. wally says:

    “Don’t think the average “Joe” has figured out that the party is over.”

    I don’t think Joe is in this market. Institutions who got spoiled by thinking ‘mark to fantasy’ was OK think they can run the market that way, too. And they have free government money to use for that game.
    They seem to manage control, to a degree, but can’t stop the wild plunges. Today is a great example; there were similar days a couple of weeks ago, too. One of these days it will get out of their control, I think.

  36. Mr.E. says:

    “My suspicion is that we’ve seen the broad market low for the day and the week, and that tomorrow we could get back to yesterdays low on the S&P”

    Doh !

  37. Steve Barry says:

    Longs are playing with fire…I can’t put it any more simply…you are holding stocks at 1929 and 1987 valuations, while there is tremendous risk of massive debt explosions.

    What are you doing?

  38. privatebanker says:

    The SP500 hit it’s 50% retracement from the March lows during the holidays which could be why there was no immediate response. Now that the market is back in real trading we’re seeing the reaction. It will be interesting to see if we make new lows and how long it will take to get there. Follow the trend…

  39. deadonarrival says:

    P3

  40. My options are American style and can be bought and sold at any time.

    As I thought the VIX are European style (check out exercise style) which relates to their expiration:

    http://www.cboe.com/Products/indexopts/vixoptions_spec.aspx

    Here is an interesting reason for why they skew so badly:

    http://www.cboe.com/micro/vix/vixoptionsfaq.aspx#8

  41. drollere says:

    interesting mix here … between niggling twitches around 10,000 and predicting that stocks will crash worse than they did in 1929.

    i’m still long, but only because i do not perceive a likelihood that the market will drop to 7000, which is about where i came back in.

    my philosophy is that the market is pure gambling. (especially if you rely on technical analysis.) gambling is fine, so long as you never borrow to gamble, and you push away from the table when you have lost your limit. when the market drops to within 5% of my entry, and i see sourness all around me, i cash out. simple as that.

    when markets generally trend up, then cashing out, even in a serious dip, is more likely to be a losing proposition. but equities have basically trended flat for the past two decades, and have underperformed compared to bonds. in that context, cashing out is no more likely to be bad than staying long — assuming you’ve already allocated more to bonds.

    i’ve heard all the talk about how cashing out is just losing money, missing the upside, etc. but losses weight twice the amount of gains (lose 50%? you need to gain 100% to break even). so i’d much rather miss half the upside than eat all the downside — especially when i have explicit control of how much downside i will take.

    it’s not great investing, but it’s good enough.