For the first time since June, equity bears are finally starting to show some downside power, with an early morning break under the 1675 Monday low, and a daily close just under the 50 day MA of 1679. How we close the week will be vitally important, for both bears..and bulls alike.
sp'weekly7 - bearish outlook
sp'weekly9 - fib levels (assumes 1729 key multi-month top)
Summary
Now, lets get this clear, I'm always suspicious..and have little more than contempt for the political maniacs. We have seen them play endless little 'crisis' games in the past five years. The current shutdown/debt ceiling arguments are more than likely just another situation that will be resolved with a 'last minute agreement'.
Right now, the notion of the debt ceiling not being raised still looks very unlikely, not least if the market falls another 2-3% across Friday/early next week. Any further market downside will put significant pressure on Boehner/Obama to at least form a short term compromise.
The weekly charts
Re: weekly7. This assumes 1729 was a key multi-month high, and arguably we'll have initial confirmation with a break of 1627. The lower weekly bollinger is currently 1594 - a very significant 85pts lower, so that's going to be very difficult to hit, even if the market trends lower for another 4-6 days.
Re: weekly9. Again, this assumes 1729 is a key top. If that were the case, then the obvious target is the 38% fib (sp'1479) - which was (roughly) the fib level we hit in the multi-month down wave of 2011. 1479 is a clear 200pts lower, which would make for a very severe drop, and negate the majority of the yearly gains to date.
The first lower low in two years?
There is one really important thing I wanted to note in this closing post of the day. Since the Oct'2011 low of sp'1074..we have been putting in relentless higher highs..and higher lows. Now, take the Dow..which as many realise..has been the weakest index lately...
For those seeking severe autumnal downside, the key level to break is the weekly low from late August of 14760. That is 226pts lower from current levels, and is certainly within range for tomorrow/early next week.
ANY daily/weekly close in the 14600s will be decisive enough to break the pattern of higher highs..and higher lows..that has endured for almost two full years*. There is trend support from Oct'2011 around Dow 14400. So, the bulls still have around 600pts of buffer zone before any 'critical' damage is done.
*indeed, tomorrow, Friday, Oct'4, is the two year anniversary since the market floored
Looking ahead
The monthly jobs report is on hold, due to the Govt. shutdown. There are some fed people talking though, so...Mr Market could again get swung around on any sporadic news headlines.
*there is no sig' QE-pomo until next Monday.
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*I am SHORT the main indexes as of Thursday afternoon, from sp'1681. I would prefer an exit into the weekend, preferably somewhere in the low 1660s..if not the 1650s, which would ramp the VIX into the low 20s.
Goodnight from London
