The bullish news here is time – with time, consensus changes…
I still don’t think consensus is Bearish Enough yet… but with lower-lows, that will come…
At 1062 in the SP500, we’re testing the lowest-lows we’ve seen since the cycle top that was registered on April 23rd. It’s been an expedited correction of -12.7% from the cycle’s peak, and now risk managers around the world are asking themselves the right question – can we crash? Using a peak-to-trough decline of 20% as a definition for crash, Greece, Spain, Slovakia, China, and Italy have already crashed so far in 2010.
Our April Flowers/May Showers call wasn’t for a cycle peak-to-trough crash of 20% in US Equities, but the probability of such a move obviously mounts as prices go lower. As they say in probability-speak, a 20% crash in US Equities should no longer be considered improbable within the distribution of probable outcomes.
Since I have now used the word “crash” 5 times (actually now that makes 6), this means we are at least testing the bounds of my being Too Bearish here. That said, provided that the SP500 closes below the long term TAIL line of support (1078), this market is in what our Hedgeyes call a Bearish Formation (bearish across all 3 core investment durations - TRADE, TREND, and TAIL) with our immediate and intermediate term TRADE and TREND lines of resistance at 1082 an d 1144, respectively.
As of 2PM EST, my immediate term downside support is now 1050. Importantly, that should be considered not only probable but a line that is below the prior closing YTD low established on February 8th of 1057.
If we see lower-lows, we’ll acknowledge that this market is becoming Bearish Enough.
Keith R. McCullough
Chief Executive Officer