The S&P futures break below all recent lows.

Trader Art S&P Break of the Lows

Today the S&P sold off strongly into the close. If recent lows are broken, the next support is at the February lows.

Trader Art: S&P Daily

Despite an attempt to squeeze the Euro higher at the end of last week, the price action remains decidedly bearish.

Trader Art: Euro Futures Daily

I remain short the S&P and the Euro.

Meanwhile, back at the factory, the accounts are repositioned and the only stocks we own are gold and silver names. We also own various calls on gold and silver and a fair amount of puts on the euro.

I previously wrote of the S&P 500 holding to it’s pattern of higher lows. Stocks have recovered off their lows, but have come upon resistance, which at one time was support. Given this picture, I am looking to short the S&P rather than be long it.

Trader Art - Support Becomes Resistance Oil on Canvas

Greece

Remember this about Greece: they cannot be bailed out by borrowing more. You cannot borrow your way out of too much borrowing. It does not work. Once debt levels reach a tipping point, there is no way out except default. Which is what Greece will be forced to do through a forced restructuring.

Big Trade

Given the crosscurrents, we are looking at a trade that could be bigger than the crash of 2008.

Hold on. The big trades are always full of twists and turns.

Stock indexes sold off violently last week. The bottom print was 1065.79 on the S&P 500. In my opinion, it will be difficult for the market to breach that low for the next 2 to 3 months.

The pattern of higher lows continues.

Trade Art: Higher Lows

Meanwhile, back at the Factory, I am captivated by one of the most desperate attempts at self-promotion that Wall Street has ever witnessed: the SEC suing Goldman Sachs (GS) for fraud. According to my lawyer, John Doe, the charges could possibly be the most irrelevant charges ever brought against anyone, anywhere, anytime.

The Facts

1) True, the CDO was sold by Goldman with a triple A rating. However, anyone who runs money should know well and good that a AAA offering 150 bps over swap has great potential for not being AAA after all. Right?

2) Yes, Goldman was long this deal. The issuer is almost always long some tranches of any deal–usually the most junior parts that have the toughest time being sold. This caveat is integral to selling the deal. We’re long it too!! They shout as though they hit the cash register on all the fees.

3) Gold. In reference to the gold market selling off, some circles allege that the catalyst was fear—fear that John Paulson may have to liquidate his gold holdings. I don’t buy that at all. Gold sold off because it sold off. John’s gold holdings could be sold off with little to no impact. He doesn’t run that much money. Also, he understands leverage very well. So well, that he shorted on over-leveraged real estate market and made a fortune. John is not going anywhere, nor are his gold holdings.

Now that we have our facts in clarifying order, we can move on to the markets. The market sold off broadly with the S&P lower by 19.61 points or 1.6%. The VIX gained 15% up by 2.47 points to close at 18.36. I am not convinced quite yet, but it looks very, very tempting to call a bottom in the VIX. I think it could spike more from here, but we could see even lower lows in the VIX later this year. After all, it is a bull market. There are plenty of problems out there, but we have GDP growth, and we have corporate profit expansion. We have the technicals and the fundamentals on our side.

Volatility Index Oil on Canvas

Best of all, Chief Market Technician at The Tinker Factory, the Timer, agrees with me. The market is bullish until proven otherwise. Friday was nowhere near the proof we need to call this the top and thus the beginning of a new significant move lower. Pullback, perhaps. Top, no. Don’t mess with the Timer. He is named what he is for a reason, and he is exceedingly good at what he does.

Now we have to wait and see how the crowd reacts to the reaction. Only then can we gauge if the sellers are met with buyers or more sellers. Stay tuned. I wasn’t buying on Friday because I don’t buy into selling; I buy into buying.

And the beat goes on.