What a fine morning, eh, Slopers? Just a quick chart illustrating succinctly how the carry trade that’s been supporting our grotesquely-overpriced equity markets is getting blown straight to Hades.
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SPX had a strong decline yesterday that broke below the 50 hour MA with confidence and made the low of the day at the daily middle support at 2055 that I had mentioned in the morning. The retracement I have been looking for after the break of the daily run above the 5 DMA appears to have started, and SPX seems likely to gap below daily middle band support at the open. What should we expect next?
The smaller of the two directly comparable post 5 DMA run retracements was 2.2% in 1991, which would target the 2033 area here. The larger of the two retracements was 45 in 1979, which would target the 1996 area here. I’ll be using these two numbers as the top and bottom of the likely target range here, though obviously with a sample size of only two the range is just a working hypothesis rather than a firm target. Here is the 1979 chart which was a strong move down that only took a couple of days. SPX 5 DMA chart 1979: (more…)