February 24, 2011 - How Far Will the Market Fall?

Featured Trades: (HOW FAR WILL THE MARKETS FALL?), (VIX), (SPX), (SPY)

2) How Far Will the Market Fall? Now that we are solidly in 'RISK OFF' mode, traders, managers, and investors are asking how much downside we are looking at. It is safe to say that those who were piling on longs with reckless abandon are now potentially staring into the depths of a great chasm. I have included charts below showing the important Fibonacci support levels. Let's take a look at how far down is down.

*1,300 '? The first big figure. Already broken intraday, but it held the first time.

*1,286 '? The 50 day moving average, the no brainer, most bullish target. The 'buy the dip' crowd takes a first bite here.

*1,280 '? 38.2% Fibonacci support level.

*1,260 '? 50% Fibonacci support level.

*1,230 '? Broken resistance from the November high. Europe blows up again. Take your pick: Spain, Ireland, Britain, Portugal'?

*1,167 '? The 200 day moving average. It must hold for the bull market to stay intact. This is where $5/gallon takes us. Double dip recession talk reemerges. The 'buy the dip' crowd takes a second bite.

*1,117 '? The November low. The 'buy the dip' crowd throws up on its shoes and pukes out the last two 'buys'. We spike down, triggering another 'flash crash.'

*1,000 '? The next really big figure. Ben Bernanke, with the greatest reluctance, announces QE3. Bond prices soar, taking ten year yields to 2%. Homes prices collapse again, triggering a secondary banking crisis.

*666 '? The Saudi regime falls, and 12 million barrels a day disappears from the market for the indefinite future. Unemployment hits 15%. Obama is toast. Your broker turns bearish and tells you to sell everything. Welcome to the Great Depression II. It starts raining frogs.

But Will He Bounce?

Legal Disclaimer

There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.