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Bulls May Panic -- and Traders Could Get Trapped

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It won't be 1987 all over again -- but the echoes are impossible to ignore.

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It was very difficult to get short and stay short in 1987 as the market was oversold quickly beginning expiration week. It was very difficult for bears to think about getting short yesterday with the market flat-lining after the open so the market is vulnerable to unwinding further.

The great unwinding in 1987 began on a lunar eclipse on October 7. We just had a lunar eclipse on August 4th. The crash in 1987 occurred apx 6 months from a low preceding a persistently aggressive rally. We had a low in March followed by the most persistently aggressive rally in 70 years. September will be 6 months from low. It is interesting that the 27th trading day from the August 7th peak (so far) is September 15th, the anniversary of the day the market came unglued in 2008 when Lehman Brothers failed. The 27/28th day from late August high in 1987 was early the lunar eclipse when the crash commenced.

Conclusion
The August 7th turning point still stands as the high. Importantly, converting price to time, August 7th was 666 days from the October 11th 2007 top. The S&P March low was 666 of course.

Yesterday, the S&P hit 90 degrees down in a tick opening down 20 points to 980. The normal expectation would be for an attempt at support the first time tagging 90 degrees. But you never know how long it could last. 180 degrees down is 950-ish. At the same time the 50 dma is 945 while 50% of the range from the July low is 944.

Consequently, you can see the potential for a cascade if the confluence of support at 945 to 950 is snapped. 944 is also the January high. A break back below those double tops will trigger a lot of stops as prior resistance is supposed to act as new support. If it does not, there will be a lot of folks trying to get out of Dodge at the same time.
No positions in stocks mentioned.

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