The premarket action is more normal than some of the episodes we've seen the past month or two, where the S&P 500 would have a very bad session, close on the lows, and the next morning we'd.... gap up. Europe of course is not helping, as their averages are taking on a lot of water, and the U.S. looks set to follow suit.
I have been mentioning for many weeks, that if you turned the S&P 500 chart upside down, it would be a bullish setup, as the market would be consolidating after a big move up. But of course, we have to look at the chart the right side up, so the inverse of what I said holds true. After a long consolidation (in this case, well over 2 months) whatever way the market breaks out from the sideways action, usually leads to a quite dramatic move. We've broken out to the downside, so we should have a substantial move from here. The obvious target is as I mentioned yesterday, the 1040s area.
Bears have the ball, but as we saw yesterday there is always the 'news event' that can cause a counter trend rally - however short lived. Some shorts surely got blasted out of positions on the ISM Manufacturing data, although that was sold off within an hour or two. So we have to constantly be on the lookout for data points or speeches or Hail Mary's. Today's is a 10 AM speech by The Bernank. I don't know what else he can say but the Pavlov dogs worship at his alter so will be throwing their coin in the wishing well. Other than that, we have a global economic slowdown, and a mess in Europe, with very poor technical conditions in equities. Capital preservation remains job #1 in this environment. There will be countertrend rallies to the upside, and probably vicious ones, along the way - but unless your trading time frame is measured in hours or 1-2 days, it's not a game most will want to play. Much more 'easier' will be when we washout...
Fun fact of the day
The S&P 500 closed yesterday, October 3, 2011, at 1099.23.
Exactly three years ago, on October 3, 2008, it closed at 1099.23.
h/t WSJ Marketbeat