Did Christmas Come Early?

For bears at least! A 5% sell off in stocks without a trigger, this is unbelievable. In 2008, when the stock market rout started we had a trigger. There was an actual bank failure. Lehman Bros. happened and that dried up the liquidity. No such thing yet for this time. While things are not that great, companies are reporting good quarterly numbers, weekly retail sales are holding up and economy is still moving, although at a stall speed.

I have been writing about the black-swan events coming out of Europe. The pink elephants in the room are Spain and Italy. Sure enough there is smoke coming out of those places. But there is no default yet to trigger such a reaction. So the market is selling off on fear of double dip? Or is just to create pressure for QE 3? Or are we in a bear market now?

While I expect the stock market to turn over, I am more than surprised with the turn of events today.  Given the ferocity of selling, I think we are not done yet. Tomorrow NFP numbers will come out and that may induce more sales.

Calling a top or bottom is a useless task. As I said yesterday, we do not know where the bottom is, but where it ought to be. Let me present a long term picture of the stock market.

This is SPX weekly chart and 80DMA. You will notice that all major corrections have stopped right on this line. We are forming a top and we should sell off. But  is the time now?  In the rectangle I have highlighted what happened the last time we rolled over. The index came down and touched the 80 DMA, bounced up, created a new high, came down again and finally broke down.

Will the same things happen this time as well? It is hard to say. But the market just does not roll over the line in the 1^st attempt. And as I keep saying, there is no trigger yet. The plunge protection team in FED and all Governments in all countries would not give up so easily after spending trillions. They will not give up without a fight. That is the reason; I think a higher high may still be a possibility, which sounds absurd today.  But such a high is a sale. Even a QE 3 will not save us from depression and de-leveraging.

So what does one do? Sell everything and get rid of the fear? Panic? If we have not done that already, it might not be a bad idea, just to step back and let the markets settle down a bit and then take a call. When the real thing hits, this sell-off will look like a trailer. Despite today’s market action I do not think we are there yet. But we will find out in the next few days.