Blue Ice Failure

Yesterday I wrote that the market was walking a tightrope and a misstep could bring on Blue Ice Failure pattern.  Unfortunately, that misstep occurred bringing down the Dow 1032 points at the close.  The VIX rallied back above 33 as fear and panic gripped the market.  Many are pointing to the fear of rising interest rates as the catalyst for the selling, but I think the real culprit is the leveraged VIX products.  They seem to be blowing up in the face of the institutions that created them and costing them 100’s of millions.  In the weeks and months ahead I suspect we will hear a lot more about what really happened.

Once again Futures in the pre-market are all over the place with very fast price action and quick reversals.  On the positive side, company earnings continue to come in very strong for the most part.  Today I am once again suggesting extreme caution.   The indexes are currently testing important price support levels.  If they hold the worst of this selloff could be over, however, should they fail today day could be a very dismal day as we seek the next level of support?  Falling to the 200-day morning average is not out of the question.

On the Calendar

The market could use some good news this morning, but there is no major report on the Economic Calendar today.  In the National News, the government finally passed a budget in the wee hours of the morning avoiding a shutdown.

On the Earnings Calendar, we also get a break today with just under 50 companies expected to report.

Action Plan

The DIA, SPY and QQQ’s finally came to rest at or near a key level of price support.  The major question for today is will it hold?  With the SPY only 4 points away from the 200-day moving average I fear the selling could easily continue to test this important level.  The QQQ’s would need to fall over 5 points to test the 200 while the DIA would need to decline a whopping 11 points to visit this important average.  That would mean the Dow falls another 1100 points!  So cross your fingers and hope the current price support holds.

With volatility so high anything is possible.  This is a market for the very fast day traders and big institutions.  As swing traders, we have no edge amidst the fast reversals and whipsaw price action.  As a result, I continue to remind everyone that cash is a position and in the current market condition it’s a darn good one.

Trade wisely,

Doug