Breaching the Line

"Sure went down the toilet on that ugly bitch."
--Marv (Wall Street)

Ugliest stock market day in quite a while. The 'wide and loose' price behavior brought back memories of 2008.

Major indexes were down 4-5% with the Dow off 512. After a morning surge below SPX 1225 tripped some sell stops, the S&P regained the 1225 level in late morning at early afternoon, or about a 2.7% loss. Lots of folks, your truly included, were watching to see whether that 1225 level would hold.

It didn't. Once 1225 was decisively breached in the early afternoon, then selling brought out more selling. My sense is that leveraged index players were being carried out on stretchers in droves today, and the action late in the day had the feel of margin calls.

Those margin calls drive forced selling--the good gets sold with the bad. As such correlations among risky assets approach 1.0. Great example of this today.

Significant support now rests below at 1125 and 1025.

I wound up covering my S&P short on the break below 1225 in early afternoon--prematurely as it turned out. However, markets are very oversold in the near term. The SPX is off more than 10% in just a few short sessions. Volatility indexes are going vertical--with the VXO up 45% today! Jason's sentiment gauges are suggesting extreme near term pessimism.

Because I had been battling this chunky short position for quite some time, I decided to book a decent trade, clear my head, and look at the situation with a fresh set of eyes.

The afternoon melt actually found me buying some of my favorite large cap names into the afternoon abyss--for a trade. I think this tape has unresolved issues to the downside. But in the uber near term, I think Snapper (a.k.a. snap back rally) has a decent chance of making a cameo appearance.

If Snapper doesn't show tomorrow (Friday), then people will surely start pondering the 'crash' scenario going into the weekend.

position in select large cap stocks