Forget The Dips, Sell The Rips

Now that was fast!

When I posted a piece a week ago noting that the SP 500 had crossed the 2100 line from below for the 13th time this year, it signified that the market had been thrashing sideways since February 13th. Perhaps that was an omen, but technically speaking it was just further proof that the stock market is driven by Fed-following day traders and algos that reflexively buy the dips.

But on Thursday and Friday last week, the casino gamblers got a rude awakening. Not only did they lose their lunch in a violent plunge during the last half-hour of trading two days in a row, but they also gave back another seven months of gains, as well as the crucial chart points that have kept the robo-machines aggressively buying the dips for the past six years.

As shown below, the SP 500 has now retreated to the level it first crossed nearly 14 months ago on July 1, 2014; and it has also sliced through both the 50-day and 200-day moving averages like a hot knife through butter.

Worse still, in Monday’s pre-market futures the SPX is down another 45 points. If that holds, the market will be down 10% from its May 21 peak and off nearly 8% from its 200-DMA. The latter is double the short-lived 4% swoon back on October 15.

^SPX data by YCharts

That all adds up to some kind of carnage, but don’t think the dip buyers are all done. As Doug Short demonstrated in his weekend chart updates, last Friday’s plunge brought the SPX down from its May peak by exactly the 7.4% drop which occurred last October.

That sell-off, however, was instantly reversed when one of the Fed’s most consistently inconsistent empty suits, Governor James Bullard, averred that perhaps it was time to consider an extension of QE within days of its actual ending. Upon that signal, the machines raged violently, taking the index up to 2050 or

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