SNAP BACK RALLY

When the market is this oversold, you can often get a snap back rally like we saw today. These rallies can look tempting, but they are often followed by another move down. In the short term, we might rally up a bit further. The S&P 500 closed at the highs of the day and the volume was a bit higher than normal. If we do move higher, the areas to watch would be 1172...followed by 1205....then 1227. These are all key resistance areas. This latest rally could be a C wave of a bearish ABC pattern. If so, we could move up to that 1227 area. Eventually the market should resume its move down to 1040...and that could happen sooner rather than later. The markets have been selling off on bad news lately and there's more news coming out over the next few days. Many are waiting for the Fed to step in and save the day, but that doesn't look likely at this point. There is a saying on Wall Street that says "Don't fight the Fed". If the Fed does step in with something to rally the market, I might have to ride that wave up...at least part of the way up.

The scary scenario is that gold could start to crash a bit. If gold starts to drop and the market continues to drop, you will see fear build as investors scramble to find a new safe place to hide. They could go to Treasuries, but that trade has also gone parabolic...despite the downgrade. The move down in silver today also worries me a bit. I don't think the sell off on August 4th took the market down far enough. I still think silver could rally much higher by the end of the year, but there could still be a sharp 5 to 7 day sell off before that climb takes place. Friday it looked like silver was starting to break out, but today's sharp selling has brought the SLV back below the breakout point. If it doesn't get back above that August 4th high within the next day or two, the SLV might start a bigger sell off. You could also look at a close below the 10 day MA on the SLV as a bearish sign.

The highest probability trades would be to either wait for the market to rally up a bit more (around 1205 or 1227) and buy some puts, or to wait for a break below 1120 to buy puts. The financial stocks still look very weak.