The markets are quiet ahead of the Fed meeting, which is typical -- especially while the market congests a quick, exhaustive short-term trend. But keep in mind that by the time the Fed meeting rolls around this afternoon, my 150 minute SPX chart should be fully juiced up and ready to start another streaky move. So there's an outside chance another trend could get rolling into the close today.
Since it's quiet out there, we've got some time to talk about the bigger picture. I've written before how this bear market likes to rally back to "tickle the underside" of its major breakdown points. This is really one of the more remarkable market phenomena of the last 3 years, yet not many are clued in. Since the market has just recently fallen away from another important breakdown level at SPX 1054, this price behavior warrants a closer look.
There have been 4 "waterfall declines" so far in the bear market, starting from September 2000. Even though the Nasdaq bear started in March 2000, in the broader markets the volatile action from March 2000 to September 2000 was really more of a topping fibrillation that was not really part of the bear market.
The hallmark of these waterfall declines is that they move very quickly when they go -- like a waterfall -- and they don't stop until that poor last panicky seller has been flushed. The VIX also skyrockets during these panicky bottoms. Of course these are invariably great buying opportunities, but that's not our story today.
There's another part to this waterfall story, and that's how prices subsequently move back precisely to the spot where the market "went off the cliff." It's happened in each of the 4 previous occasions. If we're still locked in a vicious and pernicious bear market, then this same thing has just happened again, on this latest and greatest bear market rally.
It's also clear to see that the time-span of these declines and rebounds has been roughly doubling in length since September 2000. This implies that the next decline is going to be deeper and more severe than any of the others -- and last a lot longer. That's not an idea that's getting a lot of airtime now, either. It is conventional wisdom that the market will be propped up heading into next year's Presidential election. But the prop is wobbling, even though it's done an admirable job up until now.
I'm bringing all this up because I again want to highlight the importance of this 1054 to 1060 zone on the SPX. If I'm right, and the bear market is still with us, then this whole rally was just a bigger, more extended version of the same bear market rallies we've seen previously. If I'm wrong, then the SPX will now convincingly move up and through 1060, and at that point we'll have to start thinking this echo-bubble can go as far as they want to push it. It will be an untethered bubble, floating free in the stratosphere, just like before.
Yet it's interesting that this 1054 top was identifiable before-hand as the "tickle spot", and we talked about just this scenario prior to its (potentially) unfolding now. If that 1053.79 top on the SPX was indeed a major bifurcation point, then the downtrend should reassert itself with some force before the SPX can move back up and over 1040. That is the 61.8% retracement of this down-leg, and above that level the immediate bearish case would be weakened yet again.
So we'll find out later today or tomorrow which way the next 150 minute trend is going to play out. If it's another downtrend, then it's likely to be a sizeable move to the downside, and that "domed house" pattern that Tim Wood brought to our attention will need to be given the utmost respect. There's also little doubt that there is a massive amount of energy to be released to the downside if price gets any sort of momentum in that direction. Our sentiment tank is only at 3% full. So I'm watching this action closely for a potential Rydex trade.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Filled by 1.5 points to 3% full of negative sentiment.
SHORT-TERM: Eradicated its slight Decline bias and moved flat-out into neutral.
MID-TERM: Progressed 2 points on the decline side to 10% with Confidence staying at a bullish 1. A true mid-term decline phase will be likely to kick in if/when Confidence gets a big jolt onto the bearish side of 0.
LONG-TERM: Jumped 13 points from neutral to 92% on the advance side with Confidence enjoying a romp up to a bullish 3. However be warned that this gauge is responding more to what has fallen off the back of its 20-week look-back period than to what is occurring now. Before we take this "green" reading too much to heart let's see how the week finishes out.
BOTTOM LINE: The tank filled incrementally as the market rose microscopically. The movements are really too small to count as significant. With the tank at a miniscule 3% the market will almost certainly need some influx of liquidity from exogenous sources to provide the fuel for a move above SPX 1054.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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