Why the markets could go much lower

Monday’s session was indeed a
continuation of Friday’s afternoon decline.
The selling was rather orderly,
muted and contained… in a week filled with events that usually spawn
large-range days and sometimes big directional moves.

ES (+$50 per index point)

S&P 500 futures opened on sell signals just
below the pivot point and dropped more than 4pts in favor of shorts right from
there. It then coiled sideways in undecided fashion, where we’ve seen so many
upside program-slam bursts lately. Not this time. Sell programs broke it lower
just past 1:00pm EST, for nearly +10pts from sell signals to subsequent lows.

After those two directional moves, the rest was
merely sideways coiling and noise.

(+$100 per index point)

Russell 2000 futures played the same way: short
signals off the bell, short signals near 1:00pm EST and scalper’s wiggles in
between. Mostly a program-trade driven day.

ES (+$50 per index point)

As we noted in yesterday’s report, the 50dma
did attract price action near the lows on Monday. That mark and then 1273 are
widely watched by dipsters who view each trip downward as the next hot buying
opportunity. Maybe, maybe not this time around. In any event, 1273 may not break
with ease if it does break at all.

(+$100 per index point)

The most recent low-high swing grid for Russell
2000 places initial expected support near the 723 level, followed by 50pma near
719 just below. Small Caps and Mid-Caps (not shown) have been the bull’s
preferred playground for years now. Both continue to hold relatively higher than
their bigger capped brethren.


Rob Hanna noted inside his report last night, it’s been years since the S&P
has corrected even -10% from any peak. That is a long time… longer than many
if not most of today’s retail traders have been around. Think about that for a
moment. Most of today’s active traders only know that buying dips every time
markets come in = the only way to trade. Have
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players been rewarded
for that mindset? How about oil stocks, gold stocks… many stocks?

A few of us have been around long enough to
know that eventually the market begins to dip and there is no bounce to follow.
Just another dip after the last, which precludes a lower dip still ahead. In my
opinion, stock markets are going to be roiled and volatile, perhaps very
volatile when price action begins the inevitable, normal, healthy correction

Heck, even a -20% drop for the S&P off its
highs would still be around 1050… a higher low than the 2002 bottom. I
personally have no idea whether markets will dip -5%, -10% or deeper. No one
else on Earth knows, either. I do know that markets will correct eventually, and
a new crop of bull-market traders will learn the inevitable lessons of a two-way

For now I’m very content to play the intraday
game, book solid profits week over month and not worry about a thing. Eventually
we’ll be in trending markets again, and that opens up potential for other styles
of directional trading, too. Not a matter of if lower-trending markets will
happen, merely a question of when.

Trade To Win

Austin P


(Online video clip

open access)

Austin Passamonte is a full-time
professional trader who specializes in E-mini stock index futures, equity
options and commodity markets.

Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.