Correction or Crash?

The S&P 500 looks sick today. Could this be a sign of a market collapse? Or could it simply be a knee-jerk reaction to some political or global situation like Syria? You could juggle various explanations to explain why, but whether it’s Syria or the Fed pulling back on their counterfeiting or the traditionally volatile month of September approaching, it’s all noise.

The only way to know is to look into the eyes of the market and let it tell the story…

So could Syria really be the reason for the current downtrend in the S&P 500? When Secretary of State John Kerry toughened America’s stance against Syria, stocks slipped at the same time. This would seem to be a direct correlation. Using this logic and applying it to the market as a whole, doesn’t it make sense that the Syrian situation could be responsible for the dip in the S&P 500?

It’s possible, but what’s Mr. Market saying lays ahead?

The recent high for the S+P (the benchmark index) was 1709.67. As I write it’s down to 1634.64, which makes that a drop of just over 4% since then. This is generally within the range of a PULLBACK, not a crash. I consider a drop of 20% to call it a new bear market.

BUT, the S+P is headed into trouble if it can’t push up through the 1670 area soon, and from a short term stand point, this market can fall further, so you might consider shorting the market here and tightening your stop losses on your existing trades.

The Dow Jones looks even sicker and well into downward-trend territory- the proxy for the Dow, DIA, looks even more shortable here. And if it can’t keep its head above the 14,400 mark, look out below.

What furthers this outlook is that, at long last, investors aren’t feeling as complacent as they did. The VIX (the demand for downside insurance) is spiking dramatically on heavy buying volume, and breaking above its short term trend and recent high. Above 46, the proxy for the VIX (VIXY) looks a buy, and a further sign of market deterioration.

So where this Syria fiasco goes nobody knows, but the market is telling its own story. And if you wanted to make an oil play to take advantage of Middle-East tension, take a look at Anadarko (APC), which doesn’t look so sick as the overall market- far from it. For a safer oil bet, Exxon (XOM) is bouncing around close to a long term support of $86 if you’re patient.

 

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