Is The Bull Over or Is It Actually
Different This Time?
I sold my
SPY puts during the afternoon today,
but I will be getting ready to buy them
back again soon as I think with so much
selling today there should be a bounce.
With all the fighting in Washington over
the debt ceiling and the chance of a US
debt downgrade the market just cannot
hang on any longer.
The easy way to move is down. Too much
whipsawing and the market is bound to
eventually take the easiest course which
is down. But does this mark the end of
the Bull Market?
The S&P chart below shows how quickly the market
collapsed back through the 50 day. It will be easy
to now fall below the 100 day and retest the 200 day
again. More than 700 million shares traded before
3:30 PM which, while not overly heavy, does show
that computer trading was basically selling the S&P
500 and NASDAQ shares. By 4 PM that amount had
increased to 1 billion shares marking one of the
heaviest days of the year.
The NASDAQ is now back to the 50 day. It was a very
easy collapse today with the NASDAQ falling more
than 2% in one day.
The NASDAQ lead this
entire rally
from March 2009 until now. With the selloff
today, then the NASDAQ is telling me that the market
is now in a strong downtrend. Today marks the worst
day in 5 months for the Nasdaq.
The XLF in the last rally failed to regain the 200
day and now is again falling. The chance of it
reaching 14.48, the most recent low of July 18, is I
think guaranteed. The XLF is definitely signaling
that the bull market is in serious trouble.
A few other things I noticed include that some of
the stronger stocks have really pulled back today.
For example, one stock that I watch closely is Bank
Of Nova Scotia (BNS) which remained steadfast in the
selling as you can see in the chart below. Today
however this stock easily fell through long term
support at $56.00 and fell to $54.75 at the time of
my writing this article. That is a loss of more than
2% in a day. This is a very strong stock.
One last chart to look at is the VIX for today.
Quite the jump but still not up to the $30.00 levels
- yet!
SUMMARY
The question then is, could a settlement with the US
Debt Ceiling actually stop the selling and turn the
market back around? Could it truly be differentthis time for the bull market? With so many
ominous signs, I have to wonder if the bull market
is drawing to a close. Remember though that in May
last year the market fell harder than this period
has been but it took QE2 to turn that market around.
Just remember that bear markets don't normally start
with a "Bang". Overall the market is not down much
for the month of July. This really has been more a
seesaw month. Media outlets love to play up selling
and the volatility that accompanies it. But I prefer
to look at the selling as a possible opportunity
which is why I am still selling puts.
Also, it is just as important to remember that if
this is the bull market winding down, then there
could be many months of slow pullbacks as stocks
drift lower and lower. There will be other periods
of higher volatility, and then days of serious
selling as the question of whether or not stocks
will survive return to haunt investors. I don't
believe we are at that point and I am not even sure
the bull is over. I do believe though it is
important to have a plan or overall strategy in
place, in order to enjoy profits during higher
periods of uncertainty in the market.
At the the beginning of this year I indicated that
my strategy was
The Cautious Bull as I believed the easiest
money had been made in 2009 and 2010. But if the
bull market is drawing to a close, then the strategy
of selling puts should change to selling calls. I
will write more about selling naked calls, in
another article.
