By Nicholas Santiago on June 29th, 2010 10:36am Eastern Time
Today the major market indexes are simply getting slaughtered. The SPDR S&P 500 ETF (NYSE:SPY), SPDR Dow Jones Industrial Average ETF (NYSE:DIA), and the Powershares QQQ Trust ETF (NYSE:QQQQ) are all lower by more than 2.00 percent on the session. The news out of Asia is simply terrible as the Shanghai Composite traded lower by over 4.00 percent last night. The global debt issues continue to remain center stage. As we all know many governments around the world continue to spend recklessly even as jobs and the housing markets remain in serious trouble.
Normally this looks like a death sentence and a very bearish sign. Truthfully, it probably is a death sentence for the markets. However, rarely do markets just continue to decline without a bounce. For example take the week of options expiration on June 14th – June 18th. At that time we said to our followers that the market should bounce that week as the institutional money will prop it up because the small retail option traders bought a lot of puts at the lows in early June, and the institutions would not let them make money into the end of the week at expiration. We also said to look for a decline to follow once expiration is over. So far that has worked out well. Now the stock market has been crushed since expiration Friday on June 18th. Today is an absolute blood bath and there is very little light at the end of the tunnel. However, this could be the time to start buying for a small bounce.
Cycle wise this market should ultimately go a lot lower this year. This year is a bearish year despite all the bullish economist and the Abby Joseph Cohen's of the world. However, it would not be shocking to see a short term bounce in the near term future from an oversold technical condition on the charts. While this is certainly a time to use caution on all long positions the reward could be very good should this market bounce in the next week or so. All traders should have stop loss orders on all trades to protect against a potential crash or dramatic decline if you do decide to nibble on the long side for a bounce.
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