Moody

If you look at the market's price action today, you'll see why I said earlier that as a trader you'd be better off majoring in psychology than economics. Today's market had nothing to do with supply and demand and and a lot to do with emotion, BUT, that wasn't all. In fact it was nearly a perfect storm between ignorance of events and fear of an event that has been at best, unreliable for the last several years.

Now understand, I'm about as bearish as you can get on this market, but we have to look at things as they are, not as we'd have them be and today was a really tough day to look at the market in that light.

The events contributing to today's move that may actually have nothing to do with follow up trade....

Because this has been the worst month for bonds since 2009, The first issue I'm covering for today was  managers in balanced portfolios. Because of the bonds/Treasuries performance, managers were forced to do a month-end rebalancing 'into' bonds and out of stocks to ensure the weightings remain with their mandates. 

Take a look at TLT near the EOD, actually right around 2:40 p.m., the same time the SPY broke under support

That's the monthly balancing out of stocks and in to bonds so funds don't violate their mandates that are provided within the prospectus.


A big part of today's panic was the apparent spotting of the "Hindenburg Omen" which is...

1. The daily number of NYSE new 52 week highs and the daily number of new 52 week lows are both greater than or equal to 2.8 percent (this is typically about 84 stocks) of the sum of NYSE issues that advance or decline that day (typically, around 3000).^[2] An older version of the indicator used a threshold of 2.5 percent of total issues traded (approximately 80 of 3200 in today's market).
2. The NYSE index is greater in value than it was 50 trading days ago. Originally, this was expressed as a rising 10 week moving average, but the new rule is more relevant to the daily data used to look at new highs and lows.
3. The McClellan Oscillator is negative on the same day.
4. New 52 week highs cannot be more than twice the new 52 week lows (though new 52 week lows may be more than double new highs).

However the rare omen isn't as rare as you might think. There were a cluster of them in 2010 on August 12, 20, 24th, 25th and August 31st those are all the same month, the same year. Then again on December 14th 2010 and the next day, the 15th. There were two on July 23rd and 24th of 2012, then November of 2012 there were several and the last one was April 15th, 2013, however this is not a full list of all of them that have trigged and failed.

The Omen is considered to be very accurate, or at least it was. If you read around the net some people swear by it, others think its antiquated, one thing is for sure, the advent of ETFs have generated a lot of false signals so that was part of the market panic today.

Another factor is that today is the last day of the month, Window Dressing.  So we typically see portfolios tweaked here and there as part of the art of looking smart, window dressing use to be quarterly, now many funds report monthly.

Finally one of the most relevant events today was the MCSI Index rebalancing, in fact here's a warning from earlier about late day action today...

"Trading could become more volatile near the market's close because the MSCI indexes are slated to rebalance at the end of the day. Credit Suisse forecast $19 billion in total trading as a result of the rebalancing, with $15 billion related to developed markets."

I'll be posting some follow up charts later or over the weekend, you know I believe this market is going over a waterfall, but at the same time it doesn't do us any good to pretend something that isn't truly relevant to the market for more than a day, is taken as proof of our convictions that are fact based, in fact it cheapens them.