Friday, April 1, 2016

SPX, INDU, NYA: Bears Could End the Rally Here -- but Bulls Still Have an Out

In the last update, I wrote that I was finally willing to make the assumption that "the top is closer than the bottom," followed by a bunch of caveats.  Today we're going to look at a few signals that might suggest the trend has shifted to down, at least for the near-term, and possibly for the bigger picture.  But first, I've got some good news and some bad news for bulls.

The good news is that the economy added 215,000 jobs in March (subject to revision -- all government statistics are allowed the slight margin of error of plus or minus 100%).  This means the unemployment rate is only 5%!  Lots of new McDonald's(es) ("McDonaldi"? What's the plural?) are hiring fry cooks, and any skilled laborers who need cash registers that feature ACTUAL PICTURES OF THE ITEM BEING ORDERED because they can't read or perform basic math, due to the limitations of only having a total of 10 fingers.  The other option for people who are bad at math is to go to work for the Bureau of Labor Statistics -- but word is they're overstaffed, having just hired 215,000 new workers in March.  

Anyway, now the bad news is:  The unemployment rate is only 5%!  This type of news used to be good, way back in the days when fundamentals had some impact on liquidity (a good economy might lead to excess liquidity, which was good for the market), but these days, good news is discouraging to a market that's wholly dependent on the Federal Reserve to fund every rally.

With that out of the way, let's get to the charts.

Last week, I very-slightly favored the idea that the market needed one more small wave up to complete a five-wave rally, and thus complete wave C of a large ABC expanded flat off the 1810 print low.  Since then, we did get another minor new high, and the market reversed as if on cue.  The chart below shows the first level for bears to claim, and the first expected targets in that event:


NYA discusses the option that the pending decline could be part of an expanded flat:

 Finally, INDU discusses that it may be time to shift bias to near-term bearish:

In conclusion, there are finally enough waves in place for a complete rally -- so, presuming that the red dashed line on the above charts is overlapped, we have to consider the possibility that the entire rally is over.  Bulls have left themselves an out in the form of an expanded flat, which would make a lovely head-trip for everyone, since it would lead to a perceived breakdown, followed by a whipsaw and a new high (a perceived breakOUT) -- but that new high could very well mark the "true" end of (5), and thus reverse lower again.

In either case, since there are enough waves for a complete rally, bulls will want to be cautious heading forward, and may want to adopt the attitude that I recommended for bears until recently (i.e. -- "watch and wait, until there's an impulsive turn").  While the onus to "prove" a reversal has been on the bears since the rally bottomed at 1810, things may finally be shifting back into their favor -- IF they can sustain a breakdown at the red lines noted above.  Trade safe. 

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