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Apparently everyone “knows” that the drop we saw in the first two weeks of October is going to be a repeat of what happened earlier this year on February 9th. I’d like to think of some broader possibilities. There are, of course, practically limitless possibilities for what the market will do next, but let’s consider four distinct general pathways. (Incidentally, it occurs to me that all of these are the S&P cash index, not the @ES, but I’m not about to relabel all of them!)
The first possibility is, again, what everyone “knows” will happen. That, for the 397th time, the stupid bears will be sucker-punched, and new lifetime highs are just a few weeks away. We’ll call this prospect “Alpha“:
I hesitate to write this, but it could be weeks before we see another hearty selloff. Perhaps many weeks.
Listen, there’s not a soul on this planet that enjoys a market plunge more than I do. However, the rapid descent of the market has a flip side to it, which is that the “healing” process require to put prices at appealing shorting levels again can be slow and grinding. After all, the bulls are scared witless during such a plunge, so they are going to be hesitant, cautious, and very measured when they resume buying.
This varies from sector to sector, of course, but what I’ve done below is take a sample of six stocks that I was short (prior to covering them late last week) to show just how far away they are from resistance (that is, a good shorting price). As happy as I was to be short these before, I wouldn’t dare short them at present price levels, because they are miles away from what I would consider a logical stop-loss point.
Of course, one other possibility is that these companies are in such trouble that they simple resume their plunge and they don’t even bother trying to “re-capture” those higher prices. But I wanted to show you some extreme examples to illustrate that even a multi-week rise in equity prices does not necessarily indicate that the first two weeks in October were meaningless.
In my weekend post, What Comes Next, I pointed out 2800 as an important price level. Well, the ES has ripped right up to it (as I’m typing this, the ES is up nearly 50 breathtaking points, just beneath 2800). Does it stop here? Very hard to say. Some sectors (like homebuilders) are incredibly beaten-down and have tons of room to the upside, potentially. Other items are at very interesting shortable levels.
Here are a few key ETFs and what I believe are meaningful resistance points which, if crossed, will mean “leg two” of this countertrend bounce will kick in.
This long-term chart of Celgene is fascinating. Notice how, over and over, it formed a nice base and then, once it broke out, the stock soared to lifetime highs. What an interesting turn of events recently: this time it had a failed bullish breakout (never happened before) and it has completed a huge top and is reversing lower.
With all the Elizabeth Warren kerfuffle happening about “Fauxcahontas“, I thought I should, as an extraordinarily minor public figure myself, weigh in on my own background. With a name like “Knight”, you’d expect a little English in there, and yes, that’s true. But my heritage, like Ms. Warren’s, is both diverse and – – I should hope – – qualifies me for a variety of generous programs, benefits, and entitlements.
Here, then, to an inquisitive world, from my DNA testing results from 23andme:
That last line strikes a chord of opportunity. Maybe I should open my own legal casino.
Breathtaking (literally and figuratively) how this stock is forming a gargantuan top, even after having lost so much of its value. Not that I have much sympathy for the cancer-stick maker………anyway, here’s the pattern for Phillip Morris: