Emotional Delivery...

Who'd thought this month would turn out like the way it did so far?   As you know, we speculated as early April that we’d have a sizable correction in May.  Unfortunately, we can’t speculate as to when this ferocious 'Mayfest' correction  pace will subside.   Pessimism is not high enough.   On the other hand, we have to be quite relieved that so much damage has been done in such a short time.   Lets just get it over with and stop monkeying around is our ideal.   From the look of the things, market does want to get it (correction) over with as quickly as it can.   Why do we sense that?    All of the so called important support levels of SPX, are really fragile in front of the intensity of this market correction.    This weekend, we were discussing the possibility of this market testing SPX 1100, while many probably were expecting a continuation upwards after a big previous week gains in the broad indexes..    Today, it only took few hours for this market to give 1100 a run for the money.   The low for the day is 1100.66,  now it's a question whether this psychological level will be breached soon.   It's really a question of when, not if!.    If all the levels of SPX seemed glass fragile this month,  who says SPX1100 won't be as well and we test flash plunge day lows!.

Right now,  the correction is proceeding on the assumption that Euro, Euro zone and China WILL all have an impact on the recovery of the U.S. economy.  Today, the German ban headlines are masking the underlying factors at work to weaken the markets.  “Slowing growth” in 2H is becoming the whisper .   There may be truth to this based on a few barometers just this week, such as the Empire # from Monday, Retail’s conference calls and a big Tech conference this week that is showing slowdown holes due to Asia data.    That’s a lot of uncertian things at this point to the market,  but we still need to see more data in weeks ahead before jumping to judgements.   There are always monthly data blips, even in a recovery for all segments.   What people fear and what may actually happen are two different things.   Nonetheless, people are acting on this ‘risk’ assumption and reduce their exposure to the market in this notorious month.   This is perfectly understandable because how else would you get a correction as strong as this one when we only hit the recent high about a month ago and now are down nearly 10%.

Volatility may persist for a while,  but it will die down eventually.   For some sectors, the pace of decline is just beyond ridiculous.   This is definitely a good sign for the longs who want to get in some of the plays at a reasonable price for the rest of the year at some point.    So if things turn out to be better than feared in 2H, there's really nothing to lose by going a little long in this market.    It may make sense to start buying this market despite the craziness, but that might be like catching a falling knife if you’re in the wrong sector/groups. 

In the short term, we saw some stability in the financial shares today and hopefully it can provide some stability needed for this market to settle down.    Unfortunately, the Washington bunch can’t get a vote to pass again today!.  Pressing this market too hard to the downside at this point will eventually create a spring effect.    We feel this market is much closer to a short term bounce than the volatility suggests.    Having said all this,  we still want to point out that it's still best to trade this market for the short run as oppose to invest.    We have been picking some small chunks off some of our favourite plays when the movement is extreme.    Like most traders, we are simply waiting for the market to settle down so we can really start to get to work.    Currently, most plays are being held hostage by the large movement of ETF’s (SPY etc.)