Is liquidation beginning again?
The third quarter is off to a nightmare start for the bulls. The market has declined over 4% to begin the month and is threatening more with the widely recognized "head & shoulders" pattern now active.
It counts down to around 810-820, or roughly another 7% or so from here. But that's not what the bulls are concerned about. They'd be very happy with a decline to that area that held. It would be billed as the second coming of the March 03 bottom. I'm SURE Jim Cramer would blow a gasket with excitement!
No, what really concerns them now is that maybe it isn't just a pattern playing out with limited downside risk. Maybe instead of it being the second coming of March 03, perhaps it's the second coming of the spring 1930....the top and rollover from "you know where".
If that's not their concern, it should be. That period was the most devastating in the history of our markets. The Dow declined 80% from the spring of 1930 to its low in 1932. And remember, that occurred AFTER the 50% retracement of the 1929 "crash".
That horror show was marked by the forced liquidation of assets. Sound familiar? It's the slippery slope we now stand on. Once the ball gets rolling its hard to stop.
We may be in the early stages of our version of that era. After the initial financial crisis passes, like in 1929 or 2009, things seemingly improve for a while and then BAM....reality sets in. It's a new world...a new economy...a smaller economy. Credit expansion doesn't restart. In fact the contraction continues and accelerates. People finally realize that things aren't going back to "normal". Bad debts pile up. Liquidation accelerates...and accelerates...and accelerates. Asset prices continue to fall...and fall...and fall....until they don't.
I believe that's where we are tonight. That's the risk we face. It's on the table, so to speak.
Watching the markets today made me realize how it can occur. Everything goes down. The volume isn't heavy. The buyers just seem to be all used up. It's like water torture.
So that's what we need to watch for now.
The bullish case would be for pattern or Fib support (880, 845, 811) to hold and then for the June highs to be bettered. That certainly can't be ruled out at this point.
But if after this decline the June highs aren't bettered......lets just say that wouldn't be a good sign and leave it at that.
It counts down to around 810-820, or roughly another 7% or so from here. But that's not what the bulls are concerned about. They'd be very happy with a decline to that area that held. It would be billed as the second coming of the March 03 bottom. I'm SURE Jim Cramer would blow a gasket with excitement!
No, what really concerns them now is that maybe it isn't just a pattern playing out with limited downside risk. Maybe instead of it being the second coming of March 03, perhaps it's the second coming of the spring 1930....the top and rollover from "you know where".
If that's not their concern, it should be. That period was the most devastating in the history of our markets. The Dow declined 80% from the spring of 1930 to its low in 1932. And remember, that occurred AFTER the 50% retracement of the 1929 "crash".
That horror show was marked by the forced liquidation of assets. Sound familiar? It's the slippery slope we now stand on. Once the ball gets rolling its hard to stop.
We may be in the early stages of our version of that era. After the initial financial crisis passes, like in 1929 or 2009, things seemingly improve for a while and then BAM....reality sets in. It's a new world...a new economy...a smaller economy. Credit expansion doesn't restart. In fact the contraction continues and accelerates. People finally realize that things aren't going back to "normal". Bad debts pile up. Liquidation accelerates...and accelerates...and accelerates. Asset prices continue to fall...and fall...and fall....until they don't.
I believe that's where we are tonight. That's the risk we face. It's on the table, so to speak.
Watching the markets today made me realize how it can occur. Everything goes down. The volume isn't heavy. The buyers just seem to be all used up. It's like water torture.
So that's what we need to watch for now.
The bullish case would be for pattern or Fib support (880, 845, 811) to hold and then for the June highs to be bettered. That certainly can't be ruled out at this point.
But if after this decline the June highs aren't bettered......lets just say that wouldn't be a good sign and leave it at that.
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