Per fundamental matters affecting ordinary stock market investors, Cramer does a nice job tonight explaining forces making for frightful circumstance he could not possibly elaborate on air — the mechanics of a moment marked by sheer chaos shutting out the majority of players. It's all about the lemming effect in the electronic age.
Suddenly, this week prospectively has become the worst possible follow-on to a very bad start in the year 2010. An "outside" week finishing below last week's low now threatens. This follows the "outside" month of January whose close was below the low of December 2009.
Fast Money trader Steve Grasso tonight suggested that, few players will want to be long going into the weekend. So, an outside week appears a high probability likelihood, then.
There were two technical developments today supporting the possibility of a bounce here, though...
First is today's RSI divergence as $SPX fell to a new low. Second is volume coming in lighter than that registered two weeks ago when the bulk of the decline from top occurred. This latter point seems most telling, considering today's selloff was the worst since last April.
So, still living is yesterday's suggestion that a sideways, range-bound trade could develop prior to commencement of the next wave down.
Who knows? Maybe another million souls last month were lopped off employment payrolls, freeing capital necessary to keep a mountain of financial obligations current for now. Or maybe the working class of Europe will form a consensus amenable to a 50% reduction in wages, so hopelessly insolvent securities reaching all the way up to sovereign debt can remain viable.
My facetious point here is in anticipation of some perverse cause for equity to be aggressively bid up ... at least at the start of Friday's trade. Welcome it! The stronger the bid — the sharper the advance — the better, because, indeed, violent rallies are rather typical in bear markets. Confirmation of a most negative outlook, plus a possible opportunity to establish a speculative options position, could come of it.
You might say the differential between new 52-week highs and lows on both the NYSE and NASDAQ offers a view at the precipice.
Interesting how during both early-July and late-October '09 there likewise was cause to fear risk the market might tumble over the edge. Nevertheless, in neither instance was technical justification for forecasting a swoon nearly as encompassing as now.
For instance viewing these measures alone, both now are registering below respective 200-day moving averages. You see here, too, how NASDAQ has been lagging the NYSE, once again demonstrating an absence of animal spirits such as typically sustain an advance in a bull market.
Therein lies a problem most bullish observers fail to grasp.
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