Monday, April 6, 2015

SPX and INDU: The Simple View -- Why Bears Currently Appear Stronger than Bulls

There's been no material change to the outlook, though the market continues to bounce like a dropped ball along 2039 support (each bounce has been lower than the last, as it may be burning through buyers at that support level).  Since there's been no change, let's refer back to Wednesday, which ended with two paragraphs:

In conclusion, I continue to believe that the market is on the cusp of a significant decline, and that bounces should be sold.  Again, though, I would be remiss not to mention that the market has yet to confirm this thesis (largely confirmed below 2039 SPX).  On the bull side, the first step for bulls at this point is to sustain trade north of 2089, though this would still leave bears additional options.

The bearish potential energy in this chart is now significant, and in the event that SPX sustains trade south of 2039, it is likely to produce a strong decline that may not let shorts back in, and may not let anyone attempting long positions out (except at a loss).  Third wave declines can be fast and relentless.

Moving on to the charts, we'll start with the big picture for perspective:

Zooming in on the near-term, there are enough waves in place for a complete rally to 2072:

What we cannot foresee, however, is whether the apparent abc to 2072 marks the final end of that wave, or if the rally wave will become more complex:

Do note that in the event that SPX holds 2053 and then breaks out directly north of 2072, then we might consider the potential that the C-wave is extending, represented on the chart below by blue "or (2)?":

INDU's chart covers all the options at once.  Whichever short-term path we take, the market still seems to be pointed lower; essentially until proven otherwise: (continued, next page)

Finally, we had some discussion in the forum over the long weekend as to whether the bear case indeed appears stronger and why, and I published the following chart:

In conclusion, there is no change to the intermediate picture.  Near-term, if both recent rallies have been simple ABC's, then the market has enough waves in place for those rallies to be complete, and is thus free to decline directly if it chooses.  Because there are patterns called "3-3-5 flats," whereby the market forms an ABC to mark a larger wave A, then an ABC to mark a larger B, then a five-wave rally to complete the final C-wave, a more complex correction cannot yet be ruled out, as discussed in detail on the above charts.  Trade safe.

1 comment:

  1. all my bullish indicators held....we are heading higher to 18,150-18,300 on the Dow!