SOXX, Ready To Drop

All The Good News Is Out

Liquidity Risk?

It’s been long enough; most have forgotten the ‘Flash Crash‘ of 2010.

That crash happened in May of that year.

May of this year, would make it 12-years and interestingly, a Fibonacci 144, months.

Normalcy Bias:

As Nissam Taleb said in his book, ‘The Black Swan’, every day is like every other day on the farm, for Mr. Turkey … that is, until Thanksgiving Day.

Let’s take a look at the historical chart of Semiconductor ETF SOXX, and see the effect of a Flash Crash.

Easy to spot … prices did recover by the end of the day.

What about the next time?

This report just out on ZeroHedge, shows liquidity is drying up in the bond market. Actually, liquidity has been drying up ever since Dodd-Frank of 2010.

All of this is working (to increase risk) in the background.

Let’s take a look at another unprecedented event … the downthrust and apparent recovery in the semiconductor index, SOXX.

SOXX, ETF, Daily Chart

First up, is the unmarked chart of the index.

Next, we’ll show the recovery higher is on diminishing volume.

There’s no real commitment to the higher prices …. they are just drifting upward.

We’ve already shown the Elliott Wave assessment of the current structure. Now, let’s look at it from a Wyckoff standpoint; Up-Thrust and Test.

Price action posted an Up-Thrust, declined and now has come back for an apparent test.

Confirmation Bias

At this juncture, both Elliott Wave and Wyckoff Analysis present a price action structure that’s set for downside reversal.

In a way, we’re at the danger point for both methods.

Summary

From a personal and corporate standpoint, going long in this market and all markets for that matter, was abandoned long ago (not advice, not a recommendation).

To borrow a phrase from Dan at i-Allegedly, he repeats over and over in his videos, ‘We’ve had warning, after warning’.

So, we have.

The SOXX, is telling us, it’s ready to resume action to the downside. After-hours, already has the index trading lower.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279

p.s. The insight of 2010 Flash Crash, anniversary of Fibonacci 144 months in May of this year, is exclusive to this site.

Random Notes

The Usual Suspects For The Week

No. 1

Institutional Destruction

The short video clip by Mark Dice, linked here, shows how former successful and possibly even meaningful (on a rare occasion) movie productions/franchises are being systematically destroyed.

This phenomenon is not just Hollywood but nationwide.

To be specific, the same type of destruction is occurring in the ‘wealth management’ industry.

One of the latest salvos is this ‘initiative’ to make that industry more diverse.

The comments section talks about the ‘talent going elsewhere’ to start their own business.

That may be true but remember, ‘Fiduciary Responsibility’ requirements make sure the person with the least amount of knowledge is in control … the client.

Which brings us to the next bullet item.

No. 2

The ‘Average Investor’

Years ago, somewhere around the early 1990s, Tony Robbins interviewed Robert Prechter Jr.

One of the questions Robbins asked was this:

‘What should the average investor do?’

Prechter’s response was timeless. He said:

‘Quit being the average investor’

Absolutely brutal but true.

It was a polite way of saying to get busy; stop being the ignorant, lazy, average American.

Study and learn the markets. That way you won’t be subject to the corruption and villainy that permeates the financial services industry.

Don’t think that statement’s true?

Just watch a couple of episodes of “American Greed” and see how many involve financial scams that fleece an unsuspecting investment public.

In the above link, our ‘professional’ positions short in a biotech company, Orexigen Therapeutics.

If there’s one thing an aspiring market trader speculator learns at the start, it’s never, never, never go short on biotech (at least the individual equity).

Anything can happen … and it did.

No. 3

Flash Crash Ready

This just out from ZeroHedge; Is another Flash-Crash in the cards?

First off, let’s review what a flash crash looks like.

Link to the 2010, crash.

“Paper” = Big institutional selling

’79s are trading … all the way down !!! ‘

Even way back in my SeekingAlpha days, I proposed the next major market hit would be like nothing else.

Possibly a 20% – 50%, drop overnight or something similar.

Is it not better to plan, analyze and position (not advice, not a recommendation) with a Black Swan event in mind or just go merrily along thinking you’re as close to the entry door as the exit?

Stay Tuned

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

The Danger Point®, trade mark: No. 6,505,279