Stock market: Is it time to buy?

Capturing the trend

Stock index, chart, technical analysis Stock index, chart, technical analysis

Let’s play do you think it’s a bottom? That’s the question on lots of minds. There’s an element of the fund community who think this is an excellent buying opportunity. Stocks are cheap, they are on sale, and you get a nice discount. There’s another guy who’s still touting SPX 1600 by the end of the year. Folks, this isn’t Wal-Mart. The most work you have to do to get a discount at Wal-Market is to get in a line after your turkey dinner and wait for Black Friday. I’ve done it, it’s not fun.

To get a discount in stocks, we all know it never happens by decree. You don’t will it to happen; you do it the old-fashioned way, YOU EARN IT. And you earn it by buying when there is blood in the streets. So let me ask you this question: Was there blood in the streets Thursday night?

Let’s see what happened. They took two market leaders to the woodshed and by the time the NQ dropped 40 points, it already came back. If you went to Mars on Thursday morning and just got back you couldn’t tell by looking at a chart the NDX/NASDAQ swallowed anything evil. I’m sure you’ll disagree if you are a holder of Amazon or Apple, but that’s a whole different column.

But the NQ came back which means this does look like could be a really good attempt at finding a low. However, just because they took 2 market leaders to the woodshed, there wasn’t much fear involved on Thursday or Friday. I didn’t even see the Euro equity bears on Friday. How could we possibly have a bottom without those bears putting in their 2 cents?

I wrote in my Saturday update that we needed to see the fear swell to catch a real low. So now we have to play meteorologist. Before I go on I don’t think any of this is funny but ours is a perverse business and occasionally we have to have these discussions.

Some of you will remember I booked my summer vacation in 2011 to the Jersey shore. Some might think I could’ve picked a better place but when you spend all summer in Phoenix a week in New York City and the local beaches there is very appealing. My problem was I booked the week of hurricane Irene. See, I thought I’d be safe booking a vacation the last week of August to New York as opposed to a place like Florida. Shows what I know.

I was there for hurricane Irene. What I remember most about it was the concern for the storm surge coming into New York harbor and flooding lower Manhattan. Last time they dodged a bullet because the wind shifted at the last minute and New York was spared. Once again, the headlines on Sunday were about storm surge flooding Manhattan. It would be unprecedented and not something New Yorkers are accustomed to. I hope it doesn’t happen. Could it damage the financial district? Who knows? But the fact we are even having this discussion is germane to our work. The headlines are already raising the fear to levels not seen last week. Let us not forget the first leg down of the 2011 correction completed on a Japanese earthquake/tsunami event. I’m not suggesting New York is getting anything like that, but everything is relative and the fear right now is nobody knows exactly where this storm will hit or the damage it might do. I’m no expert on hurricanes but I knew it would was a smaller probability event for Irene to hit the Northeast as a Cat 2 event. But even as a Cat 1 it did a lot of flooding damage in New Jersey.

So while we may have a low working, whether we get a fresh low on a retest is irrelevant. What we are looking for is an elevation of fear levels to give us a trading bottom. Last week we discussed the floor in the SOX. It never made it down there yet. It’s still possible. In other areas the Greenback is now in a good position to take out the previous highs in September. After a great start for the SSE, it also broke down and if it’s going higher it must reverse back up on Monday as it’s concluding a 163 day window. It would be very easy for it to retest the bottom again. So I think we have an excellent chance of retesting the low.

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