TheSlayer's Market Thoughts

SPY June 20 2013

Fed Chairman Bernanke spoke, and the markets trembled. A sell-off that began overnight gained force during the morning after weak Initial Claims. The selling ripped lower steadily throughout the day, leaving SPY slightly above its lows of the session at the close after some late short covering.

It was an old-fashioned sell-off, the first of 2013. In some ways, it was the mirror image of the rips higher that the market has seen recently, providing few good entry spots for initiating shorts as price hugged the lows throughout the day. The pace of selling appeared to accelerate as the day progressed, with the sole exception of the last twenty minutes or so.

The likeliest destination, as we have saying steadily now for some time, is the high value node in the 1540s-1550s. That is where SPY spent the most time on its ways up, and that sort of congestion is what technicians look for in terms of support. Another day like today, and we're there - but we're not predicting that, if we do get there, it might take some time.

With all the technical breakdowns, there are many fund managers and other institutional investors with portfolios loaded with equities that are rapidly losing value. It's not a question of pride with these guys, but of saving their jobs. They have to preserve as many gains as possible, else they will look like fools to their clients. Combine that with the fears of the average investor, margin calls (there has been record margin in the market recently) and the lack of any sign of buying pressure today, and you have a recipe for continued selling or, perhaps, a fairly tepid day.

On the other side of that scale is the natural desire of shorts to lock in profits and bargain hunters, but both could be biding their time. Our best guess is that selling will resume tomorrow, at the very least at the open. Heading into the weekend long after all this selling can't be an appetizing prospect for most traders. Obviously, the market could surprise us, so futures action overnight will be watched closely.

UPDATE 1 A.M. EST: Have been watching the futures like a hawk, and went long them. Nikkei 225 went green after initial sell-off, and Future are ramping higher. Tomorrow is starting to look Bullish.