Before You "Buy The Dip" - Look At This One Chart
Content adapted from this Zerohedge.com article :Source
by Tyler Durden
Authored by Charles Hugh Smith via OfTwoMinds blog,
Hello reverse wealth effect.
There's a place for fancy technical interpretations, but sometimes a basic chart tells us quite a lot. Here is a basic chart of the Dow Jones Industrial Average, the DJIA. It displays basic information: price candlesticks, volume, the 50-week and 200-week moving averages, RSI (relative strength), MACD (moving average convergence-divergence), stochastics and the MACD histogram. These kinds of charts are free (in this case, from StockCharts.com). 
This is an ugly chart.It's ugly because the decline to date is still far above support levels (the 50-week and 200-week moving averages) and the indicators have only just started registering sell signals. This means that price will have to decline a lot more to test previous support and send the indicators to levels that signal reasonably low-risk entries.
In other words, there's nothing suggesting this is a buying opportunity in this chart. Rather, it suggests a decline of another couple thousand points would be perfectly normal in a weekly chart with a big fat MACD sell cross and sinking RSI and stochastics.
Even a decline of 6,000 points to 18,900 would be technically very typical of an over-stretched asset snapping back to long-term support.
Buying the dip is a good way to experience churning whipsaws. Up 350 points, then down 450. Nice if you can second-guess the trading bots, not so nice if you assume every dip should be bought because the market always rallies from every dip. Maybe, maybe not.
Something changed, and no, it isn't just the easy-money sell-volatility trade blew up. All the other easy-money sure-thing momentum plays are now in doubt: the buy the FAANG stocks sure-thing, the buy the DJIA sure-thing, the buy the New Nifty 50 (Boeing et al.) sure-thing, the buy emerging bonds, stocks and and FX sure-thing, the buy bonds because interest rates will continue drifting lower forever sure-thing, the buy utilities sure-thing (the 15% drop since December 1 put a dent in that sure-thing), the buy REITs sure-thing, and so on.
If the momo trends that enabled every trading bot to make money by buying the dip and selling volatility go away, how will everyone make money? The short answer is that it suddenly becomes much more difficult to make money and keep it.
God forbid that money managers and punters would have to actually do their homework and pick stocks based on fundamentals. And what happens when those fundamentals start deteriorating as "growth" slides into "stagnation"?
Hello reverse wealth effect. As everyone feels poorer (because their phantom "wealth" evaporated), then they're less inclined to borrow and blow tons of money that's not actually theirs.
In the meantime, check out the cool correlation of bat guano, the yen pushed forward 6 months, lumber futures, the Big Mac Index, and the LIBOR/bitcoin pair... the quatloo is a screaming buy.
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This correction is far from over. I'm excited to start buying some VFINX soon. Been holding back because the market is so crazy.
The fun is not over.
Well, it sure looks like it will continue. The Shanghai already closed below the 200-day. Next target for US equities is the 200 SMA (22,800). The genie (volatility) is out of the bottle and it won't go back soon. Also, take care of the copy/pasters @sajeeb240896, he is straight taking comments from the source article and posting them here. Killing our vibe, lol. As I have told you, I really like zerohedge's articles but having them kind of summed up and sorted is a big help. Thanks for that :) I can also see that you have caught "a bit" of their perma-bearishness :D
What about stock market now.
"Remember them there Hindenburg omens? Yeah, technical analysis..totally fucking useless."
This is what makes us want everything to crash, so we can look toward a return to organic markets.
However, the reality is that until they outlaw HFTs (at a bare minimum) who's to say that there will be any change after a massive economic reset? All that will happen is the sycophants in the MSM will point all the sheeple at .GOV to create new sweeping controls to ensure that "this never happens again". We could end end up worse off than we are now in some respects...
Stop copy/pasting other people's comments. LOL. I've been watching for a while now, this is unacceptable.
Who the hell are you??
First thanks for sharing your posts with us @zer0hedge
"This is an ugly chart"
That can only be made uglier when interest rates are allowed to be non-existent for a decade and a phenomena known as "Quantitative Easing" has been permitted to erase and destroy basic economic fundamentals and yes "freedoms" towards it's own inevitable and "unenviable" destruction!...
Behold the "one eyed all seeing all knowing pyramid" at your service... "TIMES UP"!!!
America you've had plenty of opportunities to contemplate your own navel and change the course but you DIDN'T... And this is what "HAPPENS"!
Hope you enjoy the rest of the ride while it lasts.
@Zer0hedge..bro One could also simply look at the fact that the 10yr bond hasn't even hit 3% and the market isn't liking it, or that the Fed funds rate is only 1.5% and the market looks toppy. The Fed is now stuck pushing on the proverbial string. And the Fed says it's going to sell over two trillion in US treasuries off its balance sheet, in addition to raising rates 3-4 times in the next ten months? Not without crashing this thing down like a butane-filled Hindenburg!
All of life reminds me of that very simple game people play with a bat where you call dibs.
It's all good when you still have some bat to grab but then all of a sudden the other guy has dibs and you just fucking lose.
Everyone playing in a monetary system is playing a losing game where someone else already has ultimate dibs.
So all this horseshit is just horseshit, the guy running the money scam can lose 100 fucking times and ultimately win cause really when you own money and the right to make it, you own the world.
Don't be stupid people the market is owned by those who own money, they can make it do This is a dollar event. You can not evaluate this with traditional MACD theory. A crash in the dollar will result in a melt up. You saw a shake out before the move. There may be others, but the rocket will take off.
good sharing thanks
Lol, you mean all those people telling us this free fall will end by Valentines Day don't have a crystal ball? Love how you just layed it out there for people to think about. It's easy to follow people we think know what they are doing, but when we have to think for ourselves we suddenly realize, that, wait...it's not as clear as those people on the pulpits keep on saying. Love reading through your posts. Thanks as always for keeping it real here.
wow well information keep it up....... thanks for shareing