Shock and Pop Oozes into the Close

Pre-market futures are down sharply on a couple more bad earnings reports, this time from Retail-related stocks LOW and JCP. The futures wiggled back a bit on an in-line CPI report, but for the most part, the market is set to continue the fade it started yesterday on the failed gap up.

We may experience a Shock and Pop kind of day, where the market gaps down, stabs down sharply, and then get's so oversold short term that traders bring it back on a technical bounce. Nevertheless, there's no tremendously good reason to cherry pick calls today, especially in the afternoon.....going into the weekend.....It's possible that there will be some call opportunities, but the gap failure yesterday took out the higher probability scenarios for a nice bounce confirmation.

It's possible that we get the last leg down of the current downswing today, which could be playable for puts, especially if the market wiggles back a bit on the gap down at the open. But any put plays you will want to lock as you go (and bring stops to break-even) so you lower the probabilities of a loss on an "oversold" reversal today. The puts won't be easy this morning because the gap down this morning is going to be pretty big. I would actually be a seller of part of any put position on the gap, then watch the construction of the wiggle to see if it looks like the market will roll over and take one more sharp jab down (which I would speculate will be the last leg down of the current downswing).

Remember, any move will simply be a short-term technical move. Traders (including many of the "inexperienced" fund managers) are done with the news bogeys from the government, they aren't going to believe them anymore until we get something with real, actual substance. In addition, even the most rosey-eyed fundies are starting to realize what I have been saying for 4 months (while the market continues to fade to the low end of the intermediate term consolidation), and that is the fundamentals aren't there, and they aren't coming back strong for a long time. Perhaps we will see a big, climax type of day some time soon, but even that type of day will probably only lead to modest trending and not a new secular bull market.

Here is a chart of the SPX:
(click on image to enlarge)

The SPX is set to open in the 765 area, which opens the door for a move down to the 750 area. At that point you will want to lock and walk on most of what you have left in the way of puts, at least for now. I'm not even bothering to show the chart of the Dow, which will break to new lows today.....

For those of you listening to me rant on VC last night, I was right about this morning.....So much for all the chatter about an "oversold" market.....I keep reminding you that the only real thing propping up the market from the continued fade is the inexperienced, rosey-eyed fund managers. I wonder how many people who just "had to buy stock" or just "had to buy calls" the past several days because the market just "had to start trending up" because it's just "so oversold" are wishing they had never pulled the trigger. That's why I have been taking it one short swing at a time (for calls or puts) for a very long time. I don't like to buy stocks or options and ride them underwater $5 - $10 because I'm mentally stubborn and have to prove that I'm right.

So look for the Shock and Pop today, especially if the market reaches 750 on the SPX. We may see a big, strong comeback into the close, but I still speculate that even if the market comes back sharply, it will still fade a bit and ooze into the weekend. For now, it's heading down.....

Lastly, believe it or not, I have Jury duty today.....so I won't be able to give any intra-day updates. You're on your own today, I laid out the if-then scenarios for you as clearly as possible. Strap on you seatbelts cause it's going to be another wild ride.....

6:00 pm MT: Market Wrap: I just got back and checked the market action for the day. It looks like it played out just as I warned both last night in VC and this morning before the market opened. Pre-market I stated that you should look for a gap down, a wiggle back, a roll-over and test of 750 on the SPX (sharp jab down), a pop back (the Pop after the Shock), and a fade/ooze into the close. I just checked the DIA/SPY and the SPX and the price action mirrored exactly what I stated. We got the gap down, then a beautiful wiggle back in the form of a Bear Flag (15m chart on the DIA for example), then a stab down to 754 (just about 750), then a sharp pop back, then a fade and ooze into the close. The Dow finished down another 100 points and the drumbeat goes on.....

Here is a 15m chart of the DIA as a perfect example of the price action I warned about pre-market:
(click on image to enlarge)

Here is a daily chart of the SPX showing the drop almost exactly to the support line I drew for you pre-market:
(click on image to enlarge)

So much for all that talk around the hemisphere about cherry picking the bottom.....Today played out just as the charts were warning, and as I speculated and warned you about both last night and this morning. Trading is about calling the market. It's about strapping on the seat belt, getting sharp, tuning in, getting the rhythm, and going with the probability. And then doing it day in and day out. This isn't about ego or rightness or wanting to be in the spotlight. A guru can go in the toilet just as fast as they rise to glory. Who cares about gurus, or egos, or spotlights? None of that matters if the the guru doesn't trade profitably. The thing that matters is getting in there and doing battle and fighting for your trades every single day. That's what I love about this, no one is above anyone else, and anyone can do this if they work hard enough.