Wednesday, October 15, 2014

There will be Margin Calls...

Ladies and gentlemen, this is that point in time when the whole  "margin debt on the NYSE at all time highs"  begins to matter.  (...For those of you I have heard only a few months ago say it never indicates anything).

So brief update; yesterday afternoon after the close gold began to slip a bit.  (at least thats the first thing I noticed.)  Later in the evening Brent and WTIC began plunging straight down.  (It seems now that WTIC is gonna catch at 80, but if that level is broken I think we might see them both meet up near 75)  Zerohedge had a posting last night mentioning that RSI on Brent was the most oversold ever. FF to this morning, around 8am EST Dow futures were down 60 and SPX was down 10.  By 8:40am EST Dow futures were down 150 and SPX was down over 20.  I made a comment prior to the open that this "Could get ugly"  and within a few mins of the open the Dow dropped over 300.  (This is where those margin calls come into play)

We now sit at about 1858 on the spx down 20. We need to hold this level at 1850.  We made a bounce off of 1840 at the open so that 10 point level between them might hold us, but fair warning, if it doesn't the SPX could drop quickly another 25 points to the 1825 before finding decent support.  From there its 25 point clips down to 1750.  And that is 100 points below where we are now. This can get ugly fast.  And don't fool yourself into thinking that it already has been.  The amount of money that can be dumped on this market by major institutions that have been in for 5 years now and looking to cash out, and the speed in which the computer systems can execute such a sizable order, are capable of sending the market straight down in hundreds of point clips.  We have seen it before and the computers have only gotten faster since then.

As usual right about the time every one is certain gold is a useless asset it proves otherwise.  Below is the 4hr chart on a day when there is not much that is green.

Gold miners are holding in there.  Barely positive with the Dow down 250 now and the SPX down 30 (*Putting it at 1847, so it broke the 1850 level already.  When I say it can drop 20 more points quickly, I mean today.)  I guess thats a win considering how miners have been acting for the last 2 years.

The headline on CNBC just said the 10 year note just fell below a 2% yield.

Dow now down $280  SPX down $34 (1845 now) and the Nasdaq is down $64.  Gold is gaining still now at 1245 up $13.  Miners are slowly climbing with it.  It's only Wednesday.  Good luck.

-Jonathan M Mergott

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