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The Market's Three Options From Here

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Depending on where you fall in the long-term fundamental picture, this is either a sign to pay up for insurance or the time to put whatever spare cash you have (and then some) into equities.

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Back in May 2004, I touched on some extremes we were seeing then. We're getting a few similar readings now.

According to my quote vendor, there are currently 717 stocks on the NYSE that hit a fresh 52-week low today. As a percentage of total stocks traded, that comes out to around 21%.

Also, the skew of "down" stocks to "up" stocks right now is around 13-to-1. That, too, is a historic extreme rarely seen except in crash-type scenarios.

There are three options from here:

1. We're about to enter a secular bear market
2. We're about to see a true one-day crash, akin to 1987 or 1998
3. This is about it for the selling, before another powerful lift higher


All three are extreme, but historically we really haven't seen anything other than that. We either get extreme upside or extreme downside after breadth numbers like these. Depending on where you fall in the long-term fundamental picture, this is either a sign to pay up for insurance or the time to put whatever spare cash you have (and then some) into equities.

I'm more of a short-term trader and the timing for that is a bit trickier, but I will be watching for a low by tomorrow morning. If we don't get it, I'll become significantly more worried about Option 2.

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No positions in stocks mentioned.

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