Squawk Evening Update: January Redux?

In our Monday morning briefing we mentioned the tendency for big moves following options expiration to wait until Tuesday to materialize.  So far, the action around expiration seems to have some similarity to what we observed in January.  We’re not saying that the subsequent decline will be identical.  However, that would be consistent with the end of a correction and the start of a significant third wave decline.

So far, declines in both equities and the Euro have three waves down from the top.  That means that we still have to be wary that the decline might merely be a correction.  This wouldn’t be the first time in the past month when prices had a sharp one or two day decline only to turn back up.  One difference this time is the difficulty that prices would have threading the needle of declining and then taking out last Wednesday’s high but not the April high.  However it is still possible.

Today, prices rapidly dispensed with many of the short-term confirmation targets we published in the morning.  As we mentioned, taking out those levels would lead to at least some additional downside.  The full extent of the promised weakness was observed by the end of the day.  In other words, we saw a significant five-wave downward move that suggested we would get another matching move down.  And we have now seen that.  And for now it has us with only three waves down.

Tomorrow morning we’ll have charts with the wave count as well as confirmation items that will have us looking for the down move to continue.