Saturday, August 22, 2015

Another Black Monday? Where Is The Fed?

SGS Market Timer Status:  SHORT 
SHORT as of close of 7/24/2015

RTS Current Portfolio (2015)
Black Monday - October 19, 1987

The week before the crash on October 19, 1987 (Black Monday), like this past week, SPX had three bad days in a row and Friday was the worst day of the week.  The following Monday indices crashed.   SPX dropped 20.5% on that day and continued its decline the next day by another 4% when the Fed intervened in the middle of trading day and offered unlimited liquidity to everyone who needed it and a major financial crisis was averted.
From August 20, 1987 when SPX set a new all time high (337.89), to Tuesday October 20, 1987 low (216.46) when the Fed intervened, SPX declined 36%.

Another Black Monday - August 24, 2015?

Chances are high that indices continue their decline unless the Fed intervenes between now and Monday morning before the open.  What the Fed can do is limited since interest rates are at zero and announcing another round of QE would be out the question.  It would not surprise me if the Fed announces an indefinite postponement of any future interest rate hikes.

Technically, indices are severely oversold now and we should see a bounce this coming week.  At the same time, a severely oversold condition is the trigger for a crash, another 3% to 5% decline.  It's like pulling on a low hanging branch.  It bends and bends, and then it just snaps and falls down.

My Plan:

Last week I wrote:

"I'm still waiting to do my third and fourth short sells.  Chances are good that SPX tests quadruple  resistance (ADL, DTL, 50 and 100 D-SMA's) around 2095 on Monday or Tuesday.   My plan is to do my 3rd short sell as SPX tests that resistance zone.  After the test, should SPX sells off and closes below its TUL (thick pink), I would do my fourth and final short sell."

Well, I didn't do that, I wish I had, LOL.  Going forward, I will be looking to see what the futures do Sunday night and Monday morning.  Should the Fed intervene in one form or another, my plan is to cover shorts early Monday AM.  Otherwise, chances are good that indices either crash on Monday (another 3% to 5% decline) or continue their decline after a "dead cat bounce".

SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line