Monday, August 31, 2015
Market Update: Is Bearish the New Bullish?
The question everyone wants answered is: Are we in a new bear market now?
The correct answer is that no one knows for sure. All of us can speculate, though some folks tend to speculate more forcefully than others, sometimes pounding their fists on desks to drive home the point that their speculation is vastly superior to all others, and thus to be taken seriously. But they're still speculating in the end.
The lingering question in my mind is whether this decline was a high degree fourth wave, or the start of a new bear. The funny thing is, as long-time readers know, for most of 2015, I was anticpating that we were in a topping process. Five and a half months ago, I published the following chart, and made the argument that the market was completing fifth waves at multiple degrees, and therefore far more likely to be topping than to be gearing up for a new bull leg, as many analysts were expecting.
Of course, let history reflect that I was early in calling for a major correction... by 62.73 points on the Dow Jones Industrial Average, which is about one-third of one percent (.34%).
(And congratulations to the big name TV analysts who, over the past few weeks, started calling for a top. Welcome aboard! We've missed you for these past six months.)
The two charts below were drawn up just before the crash, and published in our forums. (And for the public record, on August 21, I described in the forum how I was seeing very real potential for an actual crash on the 24th.)
The chart below was drawn on the 21st, but I haven't published it publicly yet. At the time, INDU was in the process of whipsawing its massive megaphone -- obviously, it has since happened. This is one of the other things that makes me wonder if we're in a fourth wave, or something much more ominous.
Basically, a lot will depend on the coming sessions. SPX shows why, in the simplest possible format:
Here it is in a more complex format:
Next, a short-term chart of INDU shows that the rally could be complete:
Finally, I was a very active trader in the 2000-2003 and 2007-2009 bear markets -- in my "first" bear (2000-2003), I got pretty burned buying puts at the wrong time. So, the following chart is presented as something of a public service to any traders who may have limited experience in bear moves:
In conclusion, the question of whether we're in a bear market yet may be a moot point. The real question is simply: "Is there more decline still coming?" At this juncture, we have a three-wave rally that could be counted as complete. That makes the current resistance zone the first inflection point, and how the market reacts to this zone will be telling. One aspect of the current market that seems characteristically different from the bull is the sloth which with the current rally has recovered from the lows. Perhaps that will change in coming sessions. It's been a volatile market, but the current rally hasn't left the characteristic V-bottom of recent bull market lows -- and perhaps that's a hint that the final lows aren't in yet. Trade safe.
Posted by PretzelLogic at 3:36 AM