Roller Coaster Market

Oct 1, 2008: 10:46 AM CST

The only way I can describe the recent stock market activity is that of a wild “Roller Coaster” ride.  Up, down sharply, up again, down again – nauseating, but fun if you like the wild swings (or have short-term strategies to take advantage of them).  Let’s take a closer look at the S&P 500 to see some of these swings.

S&P 500 15-min chart:

We expected to begin the week on a high note with the passage of the “Bail-out/Recovery” Bill and I think Wall Street itself had priced in this legislative ‘victory.’  The Bill failed narrowly in the House of Representatives, sending the US Stock Market plunging along with the failure – giving us the largest one-day point drop in the Dow (777 points) and large percentage drops in all major equity indexes as well as a 10% plunge in Crude Oil prices on the fears of economic slowdown.

The technical structure at this time was that of a quite perverse bear flag that had vertical drops separated by a flat rectangle – forming one of the worst and most sudden bear flags I’ve ever seen.

Notice the 30 point swings in the S&P at the close of trading on Monday, September 29th.  Up, down, up, down, close.  Tuesday’s trading was a healthy ‘trend-day’ up which may have also defied expectations, especially if you followed the headlines “worst plunge ever” etc.  With headlines like that, who needs friends?  Seriously, the expectation was for a down market Tuesday but the Stock Market often has other plans in mind against the majority or even ‘common’ thought.

So here we are intraday on Wednesday and the market is – as of noon EST – falling.  Down big Monday, up big Tuesday, down Wednesday.  What a Roller Coaster!

What does the daily chart show?

S&P 500 Daily Chart:

The structure is, has been, and will still be a primary downtrend – price is making lower lows, lower highs, and is beneath all three key moving averages – and the averages themselves are in the most bearish orientation possible.

Caution is merited in this environment and the edge has shifted strongly to the professionals and away from the smaller/retail traders due to the increased volatity (and retail/newer traders not being accustomed to such large one-day swings followed by equal swings in the opposite direction the next day).

Again, capital preservation and risk-management are the top goals in this environment!

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