So far, I am treating this as a two wave decline. Dow and SPX will touch the 50MA at least. Bonds (TLT), which are in a bear market, will retrace at lease 23.6% and possibly 38.2%.
However, there is a distinct possibility that this is the start of something somewhat bigger. the NDX is at the 50 MA, and did breach it. It could sink a lot more than the others, quite possibly to the 2007 high, at 2210 or so, another 4% down from here, for a 10% correction. There are major divergences in the New Highs and other breath indicators, both in the short-term and in the intermediate-term (from the April and November highs). Also, there was increasing complacency in the trading community and the blogosphere - do stocks ever go down, was a constant refrain.
The safest policy is to go long bonds TLT upon a bounce in equities. Shorting NDX may also be worth exploring, as might shorting SOX or other erstwhile high flyers.
However, if this was the beginning of something bigger, I do expect there to be a substantial bounce before another fall. At major tops, drops are initially bought. There is a great deal of volatility. This is a ST buying opp, not a selling opportunity.
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