We are at a critical point in equities, weakness into today's close will make me believe that the correction has begun. This downturn should be standard and ordinary for two reasons; firstly, this rally has been characterized by lack of participation which lowers the likelyhood of a deep selloff. In other words, bear markets are generaly caused by a move from strong confidence to mistrust. The point here is that we lack any realsense of confidance, therefore we lack the fuel for a broader downward move. Secondly, there has been rampant talk of the evils of hft's and algos' increasing the potential for a flash crash. It seems to me that flash crashes can only occur if they catch the market completely off guard, and this is clearly not the case. A close below 1430.00 in spx should be the confirmation of weakness. In this case the objective becomes 1387.00..
It seems odd to sight global economic worries as the reason for the downdraft as we have drawn that arrow from the quiver many times before. Sometimes it just is what it is. Recent numbers out of China suggest a slowdown and this should be cause for some alarm. If we agree that China tends to cook the books, (I hope that doesn't get me in as much trouble as Jack got into...) perhaps signs of a little weakness means there's really a lot. Global barometers like CAT and Alcoa are flashing warnings. Two shorts that I currently have are Intel and IBM.
The dollar should strengthen as the stocks correct, but all pairs shouldn't behave uniformly. I am interested in shorting the Aussie vs the Canadian dollar as China weakness should drag down the Aussie.
As I've been typing, the S+P has lost a couple handles making the above scenario seem more likely...stay tuned....As always, if anyone has questions re; managed futures, hedge funds or information on using options to protect your portfolio or goose yields contact me through the tjm website www.tjmbrokerage.com
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