Get Out of Stocks At This Morning's Open - Oct 1 2020

Currently everything I am looking at, taken together, suggests that after this morning's apparent gap up, the risk is much higher than reward over the coming couple weeks.

I don't have time to put much info or charts here but I will quickly verbally summarize.

• Today there is about a 1% gap up indicated.  There was also a 1% gap up on Monday (which has not been filled).
• Back tests show about a 2:1 or greater risk after the open than reward.
• Back tests show about 66% chance of the close being below the open today.
• Back tests show about 66% chance of prices closing lower than today's close at the 5-6 day forward point (Oct 9th in this case)
• Back tests show about 90% chance of a lower close than today's close within the next 5 days.
• I would estimate the chances of a big decline (like 5%+ in the next 5-6 days at about 33% or higher)
• Short term cycles that I follow are peaking this morning in the context of intermediate term cycles being in a strong downward portion of the cycle.  This info is extracted independently of the other data above, but is clearly giving a confirming downside bias to the historical back tests.

The strongest portion of the coming down cycle appears to be between today and October 13th.

This recent decline has been "weird" in that it never registered any significant fear type readings in the most reliable and consistent measures that I follow (put/call ratios, VIX and VIX/VXV ratio).

The big money is apparently basically unhedged and long both stocks and the stock futures. CoT data shows that the hedgers and small speculator/gamblers were the buyers since March.  Large funds which usually buy rallies, were not buyers since March.

So if prices decline, I don't see any other option than for the big money hedgers to quickly sell out.  It could be a stampede to the downside at some point.  Add to this, the potential for the large hedge funds to begin entering new short positions on a technical break, and the recipe seems strong for a big decline if the September lows are broken.

Lastly from a price pattern standpoint, I had looked at the 9/21/20 decline and attempted reversal day.  It was pretty unique, but in 25 years of data there were 4 previous very similar days.  

• 1 marked a significant bottom
• 3 lead to 10-20% declines over the next 2-4 weeks
• So if there is a close below the 9/21 LOW, I would estimate the odds at 66% or higher of a wipeout type of decline shortly to follow.

Pete