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November 12, 2008

Halloween Comes Late

Okay, I didn't manage to totally peel myself off the monitors today, so just a quick word about the action. The charts have quickly flipped from constructive to just plain ominous. We did not want to see another test of the lows because strong markets only need one test. The market is now in grave danger of another massive breakdown. The wealth destruction could be phenomenal, and our depression would be accelerated. Here is the typical path for the current setup:

spx chart

Hope remains, and it rests upon the fact that volume has continued to recede from the 10/10 panic. Declining volume means we could yet be in a constructive pattern, albeit an oddly shaped one. If the drop from SPX 1000 were the start of a new crash, we should have seen accelerating volume over the past week.

As I stated yesterday, too many people were on the rally boat, and the market needed to pound them into despair before any substantial rally could take hold. I'd have to venture to say today's session created that atmosphere. We'll know tomorrow when we either explode higher (good), collapse (bad) or start to trace out the path noted above (very bad).


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