Last Thursday I looked at the daily bars kissing off the LR30 channel and suggested more of the same to come. Today's market action was a punctuated reinforcement of those channel breaks and I thought it might be instructive to view my ETF basket in a larger monthly bar time frame.
From the monthly bar perspective, we can see the early capitulation of the XLF and the last ditch capitulation of the XLE. Within my little basket, on a relative basis, XLE has the biggest gap yet to fill to hit 2005 levels currently being revisited by the Qs and IWM.
If the current economic meltdown was confined to US markets, there might be some high probability safe havens to crawl into until the perfect storm blows over. As most sentient beings are aware of, however, this is a global situation, with no immediate or fundamental relief in sight, despite panicky short term fixes various government entities are rushing to put in place.
The chart technicals are all decidedly bearish, and although we may have a few surprise short covering rallies (shorting ban ends Oct 17th), until further notice, the trend is down. To where is anybody's guess but selling volume on the daily bars is increasing in all 4 ETFs, suggesting a high probability that we'll revisit today's low on volume similar to the mid September's records.
As I've stressed many times, IMHO capital preservation is job #1 and I was amused to hear Cramer's latest piece of "must do" wisdom today was to set aside 5 years worth of cash necessary to maintain your lifestyle before investing any excess in the markets. That, of course, assumes you've got any left since Jim's advice is a little late to the party by about 12 months.
My plan is to sit on cash and wait for a washout since I believe current market conditions are unlikely to reverse course until such an event.