Markets Are Just Organized Craps

As I told clients on Friday, you are watching history in the making, and one day you will be able to look at the fall of 2008 and say to your grandchildren, "I was there. I was a part of it. I was scared, too."

And how can't you be scared? Last week was the market's worst in history. The system has imploded. Your 401(k) has likely spontaneously combusted. And the reality of the numerous tragedies out there doesn't change the fact that you still need to put food on your table, still have dentist bills to pay, still have checks to write for the car loan, and next semester's college bill is just a few months away. But no problem, that's why we have savings. For times just like this, for when the going gets tough.

Unless, of course, your savings were in a money market account on the verge of defaulting. Or perhaps, maybe you're in "safe" passively invested equity funds that track market indices. No problem, right? The S&P 500 is only down 32% this year. What a great deal! Or perhaps you were fortunate enough to have been invested heavily in "blue-chip" Wall Street broker companies that don't exist any longer, or might not by month's end. It's all rather comforting, isn't it? Or not.

The plethora of marketing, advertising, seminars, and the like to get you, the investing public, into the concept of "investing for the safety of your future" is a barrage on one's senses and intelligence. How many market meltdowns does one need to live through (this is now the second time this decade) before one realizes that, in my view, investing equates to playing a game of chance. Despite what "they" say, it is pretty tough for one of "them" to now deny what I have said for more than 20 years: If you choose to "play," you fully have to understand that you just might lose the game.

Don't kid yourself that it is anything but organized craps. Sure, sure. Dad invested and helped pay for his retirement and perhaps now even kicks in with Junior's university tab. He taught you to "invest in good companies" and "for the long term." After all, it's what his broker explained to him years ago and it seemed like it was a successful strategy (just as it was for the Duke brothers in the movie Trading Places).

We all know that there are few, if any, investments that pay off over time as well as the equity markets do. History tells us that. But what history also tells us is that there will be periods, ranging from months to many years, that equity markets are punished and held hostage to events that wreak havoc in the minds of its participants. The roughly 40+ percentage year-over-year decline in the S&P 500 is a darned good smack-in-the-face example of this.

I implore you to open your eyes to see investing in equities for what it truly has and will always be: just another game in life's multitude of Parcheesi choices. I know it goes against the grain of what you've heard or read in the financial press, in TV ads, in magazines, in phone calls from your financial consultant. But what are they saying now? Nothing much useful, I assure you. There's lots of hand-holding. Lots of "it will come back." And it will. And it did on Monday, when markets in the U.S. posted record gains. And my guess is probably even as you read this there will be some sense that Friday's low was a good low. For now. Maybe. But they for sure don't know.

The point is, it's a game. If you look at it this way, you will be in far better mental state to ride the roller coaster when it inevitably occurs. "If" is a given.

Let's now try to put these unprecedented recent moves into perspective and in a technical structural context: The roughly 5% range of 1050-993 encompasses the major structural support that's been in place since the long-term secular bull market began in 1982. The only other major level we have beneath that, other than the triple bottom under 800 from five to six years ago, is 860. This level was exceeded on Friday but only for about an hour, which in our view is meaningless.

These numbers are coming from monthly charts and are not the same as if one were to look at daily or weekly charts. Thus, as long as we maintain monthly closes above 860, we expect the swirling trading ranges for months and maybe years to come. Consecutive monthly closes under 860 would likely lead to a move that goes well beneath the 2002 low of 768.

On the upside, things would actually not be so bad if the SPX can close the month out above 1050. Should that occur it would not be out of the question to think that we could see a rally take the index over time to back over 1200. Where it gets dicey is if the S&P 500 closes on Oct. 31 somewhere in between 1050 and 860. In that case, the market has not shown its true hand, though it would likely have more of a negative bias than a positive one.

In the meantime, this is a trader's market. Investing for the long haul probably means nada. When global indices can move 10% in a day, does anyone even know what value really is?

Clearly, some names became dirt-cheap last week. But analysts usually tell you when a name first becomes cheap and starts pounding the table on it then. Last week proved how costly buying a cheap stock can get, as very often cheap is only the first step toward cheaper.

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Rick Bensignor is the president and chief strategist at Bensignor Strategies, a technical trading advisory firm that provides macro and micro technical and behavioral perspective across all asset classes, including on-the-fly analysis in real time. He was previously chief market strategist at Morgan Stanley Principal Strategies, where he was responsible for providing the firm's proprietary traders with strategic investment and tactical trading ideas.