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POSITION: we are short the Financials (XLF)

The Financials (XLF), Industrials (XLI), and Basic Materials (XLB) have crashed in 2011. The question now isn’t whether or not this is a “recession” – it’s whether or not the SP500 is going to crash.

This may come as a shocker to some, but markets don’t care what a Keynesian economist defines as “recession” or “expansion.” Markets care about last price. And in this Fiat Fool environment, last price rules.

When some strategists, economists, and journalists talk about market prices, they have a picture in their head (usually a chart). They often use 1-factor point-and-click moving averages to tell you what a market is “doing.” We don’t do that. That’s what the market already did.

I used to do that, and I got crushed. Today, I constantly tweak the durations of my model across PRICE/VOLUME/VOLATILITY studies (a composite 3-factor model) that effectively front-runs my Global Macro Model (27 factors that score relevant correlation risk, fractal signals, etc.).

Since you can’t see it, what you care about is what the model is telling me right here and now. So let’s just get to that: 

  1. TREND line = 1314 (broken)
  2. TAIL line = 1257 (broken)
  3. TRADE line = 1153 (broken) 

What you also see in this chart is a proactively predictable drawdown line to 1086 in the SP500. That’s the most immediate-term TRADE line of support that my model considers probable.

Interestingly, but maybe not surprisingly, a close at or below 1086 would also constitute another 2011 crash (-20.3%).

Vive La Bernank – he’s up next. And he needs to cut his US Growth estimates, big time.


Keith R. McCullough
Chief Executive Officer

Crash? SP500 Levels, Refreshed - SPX