10/19/07 4:37 pm (SPY 149.6): Today's 300+ point plunge was no doubt heavily distorted by options expiration but may reflect some fundamental reality. The dollar's decline, oil's rise, and the great uncertainty over the extent of the credit damage were all cited as reasons for the decline, but of course those factors were present during the recent almost 20% trough-to-peak rise in the SPY.
Technically, one does not have to know the fundamental why of a market's movement to make money or protect profits. This market seems in a sloppy 20% range characterized by broken uptrend lines, false breakouts, then surges back to new highs. This is the third such break by my count, the first being in February, the last during the summer, and now.
Things to note: an uptrend line was broken at 155 last week. The market traded below this line all this week then broke decisively below its 20 day trailing low.
It will be interesting to see how the market behaves on Monday once the options overhang is gone and people have had time to digest CAT's pronouncements on the economy, etc. If the July-August script is followed, we are only halfway down if that, but the dollar has crumbled since then and the Turkey-Kurdish conflict has surged and represents a potential meltdown in the only part of Iraq that was starting to resemble something close to success.
Extremely bullish seasonality is just around the corner, during the November-January stretch in particular, so if there is a sell-off, the opportunity to make sharp gains in the next few months will increase.
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