On Monday, August 24th, the Dow futures flashed -400, then -600, -800 and by the time we opened, we were down 1,000 points. In my weekly update to my premium subscribers two days earlier, I have suggested that the market is likely to bottom within the first 60 minutes of trading on Monday. However, due to the extent of the decline, I had to recalculate all of my price targets.
Five minutes before we opened I presented a new target to my subscribers…Dow 15,365. Which typically entails 15,365 (+/- 25 points). The Dow bottomed at 15,370 in the first 5 minutes of trading and then ripped 200 points higher in a matter of about 30 seconds. In other words, even though I have identified the exact bottom, I wasn’t able to take advantage of it. The market moved too fast…
Here are the two most important things you have to understand about that bottom……
- It Was Untradable: First, there was a massive discrepancy between all primary indices and associated ETF’s. For instance, DIA opened $4 lower than the Dow Jones. It was the same story for QQQ/NDX, SPY/SPX and quite a few other high volume stocks…FB, AAPL, etc…I couldn’t buy and by the time I finished typing the number of shares to buy into my terminal and looked up, the Dow was up 200 points. Why is this important? Based on my research work, such “untrabable” bottoms or spike downs get retraced about 90-95% of the time. At the very least. In other words, expect to see those levels again.
- Anecdotal: I tend to hang out with well to do professionals (lawyers, doctors, bankers, etc…) As we were having breakfast a week ago, 100% of them agreed that this was a “buying opportunity of a lifetime”. They couldn’t stop boasting about how many shares of this and of that they have bought right at the bottom….RIGHT?!?! Anyway, when I brought up the possibility of this being just the first leg down in a multi-year bear market, I was immediately dismissed as being “always too bearish”. Even though I haven’t been this bearish since 2007.
So, did I just miss a buying opportunity of a lifetime or a this a bull trap? I think the analysis above speaks for itself.
