We Took a Hit, Captain

Feb 27, 2007: 11:14 AM CST

There’s no avoiding it – the market got clobbered this morning before the opening session and has not managed to recover as we just breached the noon hour. Although the instinctive move might have been to “fade the gap”, realize that this gap was largely fundamentally driven with a possible contagion effect and struck with the indices on technical sell signals. The technical picture was shattered this morning with that gap and the market (both Dow and Nasdaq) has violated their rising 20p and 50p Moving Averages on a significant candlebar. The caution I warned about yesterday was warranted as the long, uninterrupted uptrend is now called into question, although it is still not invalidated (that will come with a lower low, lower high, and a strike-out below the new lower low). Caution is now strongly warranted as we see how severe the “Asian Contagion” from China, strength in the housing sales and consumer data (which may lead to higher probabilities of an increased interest rate hike) along with Greenspan’s recent warning of “a higher than anticipated probability of a recession”. Clearly, it is now time to raise your stops, take at least partial profits from any remaining position trades, and be very cautious with new buy swing set-ups. My guess is that we will be seeing a plethora of shorts begin to set-up if we make a lower low and then retrace upwards from that low. Please be careful out there and mind your risk management parameters you have set in place.

On a surprising note, I have rarely seen Breadth levels so divergent (as of Noon, EST)
Advancing Issues: 487
Declining Issues: 2,770

Another internal is shockingly high:
The TRIN reads just over 4.50

Also, in the last two sessions, the $VIX has risen from around 10.0 to 13.40. Quite the “fear” spike.

In the meantime, look at these ‘blood in the water’ charts.

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