Thursday, April 7th, 2016

Why the market got crushed ?

Slow earnings from GOOG, MCD, and GE created a genuine reason to sell this market off. But what exactly is happening here?

Lets backtrack from yesterday. GOOG was very extended from its run from July 17th till October 5th without any breaks. This stock was moving upwards without any relief. It remained overbought for 3 months without a rest, and it was up and up every day relentlessly. When that happens greed sets in. But the downside of greed is equally disappointing and dangerous. It happens suddenly and fast, because greed creates that danger in a traders mind that the gravy train will never stop.

A less than expected earnings from GOOG became the catalyst. It really broke the beehive. The stock plunged 75 points yesterday and 13 points and some today.

Than the sell off started spreading in other Nasdaq stocks, the weaker ones got crushed and creamed first. PCLN dropped 20 points in first 15 minutes of the opening bell. This stock is now at its August lows when it dropped suddenly 100 points. AAPL which has been moving in the channel supported at 625 also broke ranks and dropped to 609. This took the whole market with it, the sentiment turned negative and screens crimson red.

GOOG’s correction should have taken place months ago. When that happens suddenly the whole market psychology changes and turns red. When in angst they just sell and that mode often kicks in for Wall Street time and again as I’ve seen in the past. Wall Street starts a temper tantrum like a 4 year old. They will keep on selling it till that emotion flushes out and reality comes back. By that time most traders are bleeding to death and stocks are dirt cheap and the cycle re-starts again.

If you look at the video SPX is now resting on its 50 day moving average and wiped off all the gains it created this week. SPX is also moving sideways in a high channel, unless that is broken, and until it breaks, the 50 day line should provide a bounce. Take a listen here:

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