1:10pm (EST)
The bulls are looking to rebound from last week’s selloff and went into today’s session holding a slight lead for the week although Tech has been flat. The market was showing a loss of 1% across the board at the open as the bears are trying to hold the bulls under the first wave of resistance.
The Dow started the week at 10,771 and is currently down 70 points to 11,083. The bulls will be trying to hold the 11,000 level into the close while the bears will try to push 10,800. If the index falls below 10,577, or our 10,600 target which is the next wave of support afterwards, it will represent a 1,000 point drop for the year.
The S&P 500 was at 1,136 before Monday’s opening bell and is lower by 12 points to 1,148. The index is down nearly 10% YTD and the bulls are trying to close above 1,150 before the weekend. We have said our bear market target is 1,090 and a close below 1,125 would seriously bring this level into play.
The Nasdaq began the week at 2,483 and is showing a decline of 25 points to 2,455. We mentioned Sunday night in our Weekly Wrap there was a good possibility 2,400 would enter the picture on further weakness and continued failure at 2,500. The bulls will be trying to hold 2,450 into the close but we have also been warning of a possible test down to 2,300 since mid-August which would represent a 20% correction from the April highs.
The S&P Volatility Index (^VIX, 40.25, up 1.41) popped above 43 on Monday and hit a high of 42 yesterday. We said in our Weekly Wrap if there is a continued selloff, the VIX could reach the 50’s. Today, the VIX has traded to a high of 41.46.
We wanted to bring next week into focus before the talking heads do because nobody is mentioning it right now.
Three years ago, the Dow fell 1,875 points during the first full week of October, or 18%. It was the worst week in the Dow’s HISTORY. We all know history likes to repeat itself but that theory doesn’t always hold true in the stock market and can be expensive if you are wrong.
Although we feel the market is oversold at current levels, stocks can get cheaper and PE’s can get down to single-digits before a bottom is hit. The first trading day in October has been heavy on the indexes in 4 of the last 5 years and if the market closes lower today then the odds are even greater we test new lows before the selling pressure is over.
We will cover more of this in the Weekly Wrap on Sunday night and some other tidbits worth noting as we look ahead to the fourth quarter. Companies will start reporting 3Q earnings in a few weeks and we finally have a deadline, or hard date, with Greece’s fate on if they get another bailout or not. All of the headline news will be front-and-center in mid-October so these may be the two catalysts that can get the market out of its current 2-month trading range one way or another.
We have put in a good week and have been quick to take profits when we can. We expect that trend to continue but once the market bottoms there will be plenty of stocks on sale to where we can use longer-term call options.
Subscribers, check the Members Area for the important updates. After locking in 74% this morning on one of our current trades, we are closing HALF on another trade that is up 55% in less than 24 hours as well! Winner, winner, chicken dinner…
We will be back Sunday night with the Weekly Wrap so until then, have a great weekend!
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