FREDAlert!
Volume 7, Issue 4
August 25, 2015
We have had several questions about Monday’s open and whether the $182.40 low on SPY is close enough to our downside target of 180 to end the decline. While the market has fallen roughly 14.67% this may not be the end – the reason as we have said before, is the weak internals prior to this decline. A real bear that takes months to complete remains a distinct possibility. For those who added money on the low or when the first half hour high was exceeded we are fine with this but would still hold money out for now.
With the McClellan Oscillator at -335 or so, and the daily FPO in the -20 area, we are in the neighborhood of a trading bounce, but at the same time this looks like a kick off move to the downside. Therefore a bounce could occur and lows be retested. While every advisor knows their clients, the general feeling is that more, and not less caution should be in order.
We want to mention Gold and Gold stocks. In the crash of 1987 these worked as a hedge for a while but were ultimately obliterated. We would be careful here and consider sale or at least using stop losses.
Several asked “Why China?” Our view is that this market could lead a bounce even if the decline is not yet over. This morning it appears the decline in China mainland is not over as it dropped another -7.10%. That said, the People’s Bank of China just came out due to this weakness and cut its benchmark interest rate for lending and deposit rates by 0.25% and cut the reserve requirement ratio by 0.50% effective September 6th. We believed that this has good trading potential but it is scary and most clients should probably not implement this strategy.
We do not have a downside target beyond 180 – 185 at this time, and are afraid to develop one for fear the market will move immediately to that level. Kidding, but in fact we need to see more trading action to do formulate such a target. This week’s midweek should be interesting to write. Until Wednesday morning, remain calm and try not to overtrade here.
