The card of the God

As I said a few days ago, the daily chart of S&P still looks very bearish and is poised for further downdraft, but I honestly thought it would rebound first before its next leg down. Well, the Market God just wanted to prove I was wrong and didn’t really played card as I expected by bouncing first but instead mounted a free fall for 6 consecutive days, giving up 10% from its recent new high. Volatility nearly doubled to show how panicky the market was. Not sure if it is widely known, while October in average is the best month of a year, from time to time some worst days of market plunges also tend to occur in Oct. The most recent one is of course Oct 2008 in which Dow declined 14%, to kick start the Great Recession. Then a little bit earlier in 1987, the famous Black Monday crash knocked down the Dow by 23% in a single day, which is still the worst single-day percentage plunge in history. Much less remembered were 3 one day big gut-wrenching plummets in Oct 1029 called Black Thursday, Black Monday, and Black Tuesday. If we go further back, the NYSE witnessed a 50% plunge in Oct in 1907. Ouch!! So folks although it is not common, it could happen in Oct to see some serious crashes in the stock market. It could be worse than what we have just experienced.

But the good news is that I think the worst is probably over by now. The relentless panic selloff, while painful for those overtly long in the market, has made an extremely oversold condition even worse than Jan and is setting up a much better base for the market to launch the year-end rally. We probably will see new highs by the year end! But again, it won’t be a straight-line up from here. The initial rebound may feel like strong and powerful enough to just continue for the remaining 2 more months, there is a high chance we may see another retest of the recent low in order to build up a more sustainable momentum for the year-end rally. See the chart below for S&P to remind you what was the recovery course since the Jan plunge to its new highs. I have written a lot during the period to map out the likely pathway and given enough warnings for the low testing when there was strong rebound initially (you may still remember my Suicide Kiss call-check it out here for details). Don’t be surprised to see something similar in the next few weeks. So if you want to trade in the market, just keep this in mind.