On Monday from the morning high to the afternoon low the DJIA dropped over 900 points, then bounced over 300 points to “only” close down 245 points on the day. That’s down almost 2500 points (over 9%) since early October, while some key and very widely-held stocks such as Amazon (AMZN), Google/Alphabet (GOOG), Facebook (FB) and even Goldman Sachs (GS) are down 20-25% in just a few weeks or months.
Posted October 03: While the senior index has made new all-time highs this week, the typically leading small-caps printed a two-month low Tuesday. That’s a historically unprecedented divergence. The only comparison was in early April of 2000, before one of the biggest market crashes of all time, when the DJIA made a two-month high while small-caps made a two-month low.
So far this month we've stressed that stocks remained overbought even in the short term and repeatedly warned that “those looking to speculate on a bounce by entering long positions should go lightly, because a cascade unlike anything seen in years is also possible.”
While this still remains very true, stocks are now moderately oversold on a short-term basis so a bounce seems due and likely started Tuesday. There should then be a rally that lasts roughly 1-3 weeks.
Key word is “should”, based on typical action. Stocks remain overvalued and overbought in intermediate and long-term measures.
Friday we wrote that “If stocks are down again in the coming days, look for a bounce between 24100 – 24300 in the DJIA.”
We stress yet again however to be very careful and to go lightly and temporarily, if at all, into speculations on the long side.
Our suggested QID (Ultra-short QQQ ETF )sale at a limit of $46.50 was missed by just $0.20 It is up by 25% in under 2 months.
We’ll leave our QID position for sale at a limit of $46.50 until further notice, meaning we’ll sell for no lower than $46.50
We’ll also add our 2nd VXX position for sale at a limit of $48.00 until further notice, meaning we’ll sell for no lower than $48.00
This position is up 47% in under a month, while our 1st VXX position was sold last week for a gain of 49% in three weeks, adding to the realized gain in TZA of 54% in 5 weeks.
We’ll update these positions again on Wednesday, and once stocks rally we’ll announce repurchase levels for the recently-sold positions in VXX and TZA.
While the quarter isn’t over yet, as of today we have a situation in our proprietary Quarterly Momentum Indicator not seen other than on December 31 1999 and June 30 2007, just prior to the biggest and longest bear market crashes in modern history.
At this point the DJIA is only back to slightly below break-even for 2018, however most individual and institutional portfolios are far below the levels enjoyed at the start of the year. Those who have tried to “buy the dips” thus far have only added to their losses. Quite possibly catastrophic losses.
The amount of leverage that’s been employed is unprecedented and the last week alone is enough to have totally destroyed many individuals and even major funds. News of that sort will soon enough be coming to light in personal, professional and broader circles.
Until then, it is not the time to attempt timing a bottom. It could still be a very long way down, in points and in time, before the excesses of the past several years are unwound.