What Will The Bears Do For an Encore?

We'll find out tomorrow morning at 9:30, is probably the best answer.

Though, we will have early indication of how things will shape up for tomorrow once trading in Shanghai begins in about 2 hours.

Here's a useful link for keeping an eye on the activities in Shanghai: http://www.sse.com.cn/sseportal/en_us/ps/md/sh_b_qci.jsp.

With regulators in China worried about excessive speculation, I just can't help but to wonder if the government will allow things to slide a bit further to wring out some speculative excesses in that market. With a TRILLION in foreign reserves, the Chicoms could easily stop any sort of blood letting in their stock market, but excess has been a concern. Helping to grease the skids - new rule changes. And next week, the big meeting of the National People's Congress where more legal reforms may be coming which could impact the Shanghai market. Somewhere in this blog is a link to a WSJ article about folks in China buying stock by using credit card debt and even mortgaging their homes - all a not too much for regulators. Of course, knowing what we know on how the Hong Kong market has been operated, especially pre-2000 it's also doubtful that we'll see complete meltdown in Shanghai.

Getting back to the U.S market outlook. While I had been writing about various warning signs that there were trouble signs (and being abused for it and called bad names), I wasn't thinking we'd be seeing a 500 point down day this quickly. I was thinking next fall. And who would have dreamed a shoot up in the VIX to 18+? LOL, I did own VIX calls (between 30 and 80) at each strike all the way to 18 and have sold most them. These VIX calls I had mostly quintupled or more in value today so this was one of my best days ever in the markets. But even here, I was not expecting late February fireworks.

With this surge in VIX and TRIN, it would not surprise me if we get some sort of relief rally perhaps as early as hour 2 of tomorrow's session IF things don't blow up too badly in China overnight, or some other dislocation doesn't appear by tomorrow morning.

But there's a BIG BUT here. Technical damage has been severe. I think the relief rally will be brief (watch out for those briefs). Now that the 20 week moving average has been soundly trounced in the Dow, once we get some relief, the 50 week or thereabouts sure looks prime for the pickin'

The shabby thing about the above Dow chart is that weekly MACD (top chart) has negatively diverged for the first time since last May. That's were I'm thinking that we're in for further eventual downside.

Same for other major indices. 50 day, 20 week, etc taken out today. Yes, likely rebounds, or snap backs, but further downside testing looks likely given the technical damage. More later. Time to take number-1 son to cub scouts.