The market dropped to a theoretical Dow bottom at 11,778, well below a longer term moving average, on Friday. That it "held" here may show yet another test of a bottom, and the closure of downside, BUT too much in the world is wrong, and too many variables could allow even more downside.
The July620C was sold at stop loss, our second stop loss in two weeks on calls. The July580P was available as low as 6.40 and sold to 8.90, available only for traders paying above prior day close.
At 11,880 as a low, our projection, if the market is not able to hold near or above this level over the next few days, more downside could easily occur, as institutional traders have now begun their stop loss against moving averages.
Floyd read this last downswing wrong. The 21 day cycle pattern that historically shows swings was broken by an extended downside, just as in January's freefall. I do not want to mislead you. I may be wrong again, just as I warned during our 40 plus position in a row success ratio (that I was not infallible and would be wrong again), and I have trouble seeing now where the bottom could occur.
Statistically everything is just as bad as it was three months ago. Even more is being exposed that is wrong, and oil continues to rise. Soon we'll be drilling offshore off Florida.
Oil prices will affect the world beyond our own beliefs, and we do not yet see it, only worrying about the cost of a gallon of gas for our SUV's. Cars get no better mileage now than they did 8 years ago.
At a company I work with there is an employee that I call "Mrs. America" that you should know:
*She makes 11.00 per hour, or 88.00 per day. 1/3 of her income comes out in taxes and benefits. This means she brings home 59.00 a day. She lives 22 miles from work, and drives a 4 year old Ford Expedition that she still owes money on, and that gets 11 mpg.
44 miles a day at 4.00 per gallon, 11 miles per gallon, or 16.00 a day in gas. Add the cost of the maintenance of the vehicle, and insurance.
Floydian Math: this woman works now for less than $20.00 a day take home pay.
Several months ago I began raising pay to hourly's at this company in advance of what I saw as an economic meltdown, and even with raises in pay we'll soon see hourly works that commute more than 8 miles a day wondering the value of working.
Soon she will figure this out, and quit coming to work.
Who is to blame?
With market conditions in constant whipsaw (one week ago Friday a 165 point move up, and a week later 220 points down, with wild swings in between), with eocnomic data that is shocking in its portrayal of our decline, it would appear that a bear cycle is beginning. And it may be.
If the market is able to hold at 11,650, what I see as an absolute bottom test, euphoria may still reign again.
If Israel bombs Iran, or the Saudi oil summit is not "proof" we will be "taken care of" (occurring this past weekend), who knows what devastation can reign economically.
Study our Dow projections carefully. We were right on all moves until this last bottom, which is too lengthy in time.
Other trading services are recommending market exits. This breeds a bit of optimism on Floyd's part that the market will now turn around:)
"Friday's trading produced the fifth distribution day in 13 sessions for the NASDAQ and our market model issued an 'exit' signal. The weekly chart shows volume above the 50 day average for the last three weeks and also higher than volumes when the index was ascending from mid-March to May. The implication is that the optimism that followed the Bear Sterns bailout has evaporated and investors are now expecting that the financial crisis is not yet over, that the economy will continue to decline as the dollar continues "
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