WILD DAY

There was a lot of volatility in the market today. There was the big gap up at the open which was expected...then the big sell off during the day which was not expected. There was a point early this morning when it looked like there would be bearish engulfing patterns all over the place. The bulls managed to pull the market off its lows going into the close, but the day was still very bearish overall. Most of the selling was due to a very weak ISM number and the uncertainty that the debt ceiling legislation might not get passed. We need to put today's volatile price action into perspective. I read that today was only the tenth time over the past 26 years that the S&P 500 has been up 1% or more in the first half hour of trading only to give it all back (and more) by 10:30am. In other words...it was a rare event. With the Dow having been down for the last six days, it was highly probable that a 1% move up in the morning would lead to a bigger rally today...and perhaps over the next few days. As you will learn in trading, a probable move doesn't mean an absolute move. This is why you never bet your entire account on a single event...no matter how high the probability. That said, the Dow has now been down for 7 days in a row. We haven't seen that many down days in a row since 2008 after the collapse of the financials. The market is oversold and due for a rally. The final votes on the debt ceiling should take place tomorrow. Barring any additional bad news, the market should at least stage a decent rally...despite the bearish price action today. Any rally would likely cause the volatility index (VIX) to drop significantly. I still think the "calls on the SPY, puts on the VIX" trade will work. I still don't recommend any new trades right here. Today's movement in the market reminded us that there is still a lot of uncertainty out there. It is dangerous to buy the market right now and even more dangerous to sell it...given the 7 down days in a row on the Dow. The safest place is in cash. I've talked about 1265 as a key support area, but the specific level is closer to 1258 based on Elliott Wave analysis. A break below this area would signal the possible start of a huge move down. A strong "up" day with a close near the highs of the day would likely signal the start of a bigger move up...at least back up to the 1344 area. With the increased volatility in the market, look to take profits off the table with any "big" move in the market. Don't get greedy. The market has been swinging back and forth...not trending very much.