Waterfall Hazard

"The guy did a Peter Pan right off the edge of this dam right here."
--Deputy Marshal Samuel Gerard (The Fugitive)

The answer to the $trillion question turned out to be a), the 'elevator shaft' scenario. US markets gapped lower by over 2% and, save for a few rally attempts here and there, basically sank throughout the day.

In the last 30 minutes, margin calls intensified the selling, sending the Dow to a -600 point day. The SPX was off almost 80 handles.

Last Friday I put back on a small SPX short position which I let fly into the morass this afternoon. Stocks are going down very easily here.

Indeed, downside bets may be getting too easy. What we've witnessed in the past week is a 'waterfall decline' which is self-explanatory by the image above. And contrary to the waterfall imagery, markets rarely move in a straight line without relieving some pressure.

About two weeks ago the SPX was tickling 1350 and appeared to be tracing out a reverse head and shoulders pattern (bullish). The SPX has shed about 17% since then, which qualifies as a multi-day crash.

While I sense that, ultimately, the indexes have more work to do on the downside, I'm warming to the risk/reward of a long side trade. Technically, the SPX has some support right around here. Moreover, trend exhaustion indicators are suggesting high probability of a near term 'trend reversal' in all major indexes. And bullish percent indicators now show levels that favor upside rather than downside.

As such, I did some buying in big cap tech this pm.

A wild card over the next day or two is the FOMC meeting. Cratering markets are exerting big time pressure on the Fed Heads for another round of QE. Past Fed interventions have invited huge amounts of risk taking behavior steeped in moral hazard. All this risk is looking once more for a bailout from the Fed.

The money pouring into gold (north of $1700/oz today) is betting that Uncle Ben & Co will do the deed and keep moral hazard in play.

position in select big cap tech, gold