Tuesday's Plunge As Seen By A Permabear

October 12, 2016

How exhilarating! Just when bears were ready to throw in the towel after nearly three weeks of asphyxiating tedium, stocks swan-dived Tuesday into what we can only hope is an unfathomable abyss.  The S&Ps were down almost 35 points at their lows, and although a short-covering rally in the final 90 minutes recouped nearly a third of the day’s losses, there was reason to think buyers might do the right thing and drop-the-hell-dead before the Yom Kippur holiday ends at sunset on Wednesday. 

The old adage to “buy Rosh Hashanah, sell Yom Kippur” seems to be getting a nice play this year in any case, and we can only hope that it continues to hold true with a vengeance. For how else will the stock market and the economy ever return to sanity?  The current mania is nothing that a 10,000-point plunge in the Dow wouldn’t cure, of course. But if that’s what we are seeing the beginning of, it’s going to take some time, and not just a little pain, before investors come to understand that $100 million homes, and $60 billion valuations for such as Uber, are not only not normal, but downright nutty.

From a technical standpoint, the E-Mini S&Ps looked primed to fall a further 42 points, equivalent to a drop in the Dow Industrials of about 350 points. That would bring the futures down to the 2090.25 target shown.  It was first broached here several weeks ago, and although the gratuitous ups and downs since then may have caused chartists to lose sight of the targeted support, its attainment was never seriously in doubt. Interestingly — or perhaps not, since even quants often rely on obvious technical patterns — it was a lowly trendline, shown in the chart as a descending brown line, that contained all of the rallies going back to September 22.  It came very close to nailing the top of the last of those rallies yesterday, but from this point forward, Hidden Pivot levels x, p and p2 can be used to set up ‘mechanical’ shorts if you know what you’re doing.  If you don’t, I’d suggest tuning to the chat room, where there will always be a dozen or more traders who know exactly how these set-ups work. You don’t subscribe? 


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