This is Not a Bear Market, Yet
For the past three years this market has been like watching, a bunch of half drunk amateurs climb Mt Everest. Why is everyone surprised by the steepness of this initial decline. Some of the CNBC experts are having real trouble calling a spade a spade. Jim Cramer wants to blame Volatility ETF’s or any leverage ETF for the decline. Pete Najarian keeps saying markets don’t top like this. That would be true for markets based on fundamentals (the experienced mountain climbers), but this is a market based on the amateurs, Washington, the Fed and the politicians.
The steepness of the decline says one of two things, this is a flash crash (what a lot of people are talking about this morning), or this is the real thing (a market in real trouble). This should be answered in a few days. If the S&P Index can rally quickly, 3 or 4 days, and consolidate above the 62 percent Fib level, 2745, then we can say this was a flash crash and the party can regroup, and check out the fatalities to be carried down the mountain.
What will not happen, in my mind, is a consolidation around this weeks lows and a resumption of the up move.
What this means is that for the next three days we should see a lot of volatility as the bid to prove a flash crash is strong. My take is that this is not a flash crash or an ETF generated situation.
The Risk Situation
The other side of the coin, if this weeks lows on the S&P are breached on a close basis in the next three days, the first real ledge, the base camp if you will, that can provide a support base is 2133 on the S&P. This is the level of May 2015, where the market put in some work after the FED stopped increasing the Balance sheet. What is interesting about this level and the timing of a test of it, is that I doubt the Macro Trends will move to Bearish even then. That confirmation will be later and require a lot of time.
The one report that caught my eye today was the inventory increase in the 4Th quarter, as I have outlined previously, the strength in the economic numbers is based on the “Hope” agenda.
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