Buh-bye October 2009 ... Hello October 1987 ~ The Risk Averse Alert

Wednesday, October 28, 2009

Buh-bye October 2009 ... Hello October 1987

Now we're cooking with gas!

I must say ... the picture so far this week looks rather October 1987-ish in the way selling appears to be cascading with no sign of a let up in sight...

SPX 5-min

Note how since Monday's thud RSI is failing to show any sign of $SPX regaining its legs. No bounce yet has generated any notable improvement in relative strength.

Note, too, how throughout today's continuation of this week's selling RSI failed to reach a sell-side extreme. Indeed, you might say that, as much as apparently can be, the buy-side and sell-side of the trade have remained relatively in balance.

These two notes taken together suggest more selling is likely straight ahead. In fact, tomorrow could be downright ugly — down 5% or more — and yet, this would be but a taste of far deeper selling still to come.

Per various technical measures today only furthering negative extremes thus far reached during the turn away from top, what's another day doing much the same? Likewise, a period in which a momentary bottoming process develops (with all due technical divergences registering) subsequently should be expected. This, of course, would occur as major indexes fall still further from their respective tops.

Bottom line, today's trade appears a terrible blow. Yet that the day's selling might be characterized as entirely orderly (this despite never showing any sign of abating) gives rise to the possibility of such lopsided, disorderly selling as is fitting the moment ... bringing the present, initial move away from top to its crescendo.


One is but left to wonder just how quickly some measure of panic might sweep across the stock market. With noteworthy bankruptcies and runs on hedge funds making news these days a perceived heightened need to raise capital among those players affected risks a rush to the exits it seems. A rapid collapse back to respective 200-day moving averages just might be the order of the day.


All color-coded for your pattern matching fun! The risk of a sudden slide appears no pretender...

Fast Money
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