With dramatically increased volatility in global markets, today King World News is featuring a piece that warns the markets are now at the beginning of a historic selling stampede. This piece also lets KWN readers know how long the selling stampede should last.
By Jeffrey Saut, Chief Investment Strategist at Raymond James
January 14 (King World News) – "Nero fiddled while Rome burned." — A Roman idiom
It's been said that "Nero fiddled while Rome burned," which plainly is a reference to the great fire in 64 AD. However, back in the first century the violin had not been invented. Indeed, the violin's origins don't materialize until the 16th century. So if Nero was really playing an instrument as Rome burned, it was very likely a lyre. Now while I am certainly no Nero, I was accused of it recently given my travels since the beginning of the year, rather than being at my trading turret on Raymond James' campus in St. Petersburg, as the equity markets swooned.
Yet, the fact of the matter is the equity markets have not crumbled even though it may feel like it. By my pencil the D-J Industrial Average (INDU/17613.68) has traveled over a stunning 2300 points from intraday highs to intraday lows since the first trading session of the year. But, such gyrations have left the Industrials only ~1.5% lower than they were on December 31, 2014's closing price of 17823.07. Granted, there have been a number of stocks that have cratered since January 1st, but the overall stock market averages have not. This does not mean I think the equity markets are "out of the woods" despite yesterday's early morning Dow Delight (+282).
What has effectively occurred is the S&P 500 (SPX/2023.03) slid into 2015 by shedding some 100 points and in the process knifed through its 2030 – 2040 support zone. That activated the target of its next support level at 1990 – 2000, which as we suspected "held." Subsequently, the SPX proceeded to rifle back above what then had become overhead resistance between 2030 – 2040 and towards the next upside resistance zone of 2060 – 2080 where again it failed to extend on the upside and immediately fell back below the 2030 – 2040 support.
Ladies and gentlemen, when the SPX fails to break above a meaningful overhead resistance level, and then proceeds to fall below another key support level in the same session, historically it has not proved to be very good tape action; and, yesterday was no exception. More importantly, yesterday qualified as an "outside reversal" session meaning the day's intraday high/low were above/below the previous session's high/low and the closing price was below Monday's close with bearish implications (see chart). To reverse those bearish gleanings, the SPX needs to gather itself together pretty quickly. My worry is that we are into one of these "selling stampedes" that typically last 17 – 25 sessions and today is only session 11. This morning the SPX futures are lower (-7) as I write from the Delano on South Beach and the World Bank cuts the world's growth prospects despite the price decline in crude oil.
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