I’ve been waiting for a swing low to mark the daily cycle bottom and likely the intermediate cycle low also.
As long as we close positive today we will have that swing. (We will also have a four day rule possible trend change) I think there’s a very high probability that Thursday marked the bottom.
Folks this is just how intermediate cycle bottoms unfold. They always make everyone believe the decline will continue forever. They always bring out the calls for a crash. And they always bring out the trolls on this blog 🙂
The thing is they also always eventually bottom. Then the market rallies long enough to reverse sentiment back to bullish extremes. In bull markets that means new highs. In bear markets the fundamentals pull the market back down before new highs can be made.
Once I become convinced we have indeed put in the intermediate cycle low (a pretty good tell is when the bears start blaming the rally on the PPT. A sure sign they got caught short at the bottom) then the bounce out of that low will tell us whether we are back in a bear market, or whether this has just been a correction in a cyclical bull.
If the market rolls over and moves below the intermediate low (which appears to be at 1014 if the swing holds) then yes the markets are back in bear mode. If we go back up and make new highs…well that would be obvious now wouldn’t it?
So the next month or two should tell us the true direction of the market.
The current decline has now lasted longer than even the longest leg down in the last bear market. The longer this goes the closer we get to a significant rally.
As you can see this decline is now 7 days older than any decline during the last bear market. I’ll say again that bears hoping the head & shoulders pattern will drop straight down to 850 are probably going to get caught in an explosive intermediate degree rally.
It just doesn’t make sense to continue pressing the short side at this point. It’s safer to wait for a rally and then sell into it when it looks like it has topped.
We’ve already had two intra-day reversals. There is a good chance this correction (bull market) or leg down (bear market) has reached exhaustion. At the very least one should tighten up stops so they don’t lose whatever gains they might have.
Although any little piece of good news or “surprise” Fed announcement pre-market could send the market rocketing right through stops trapping shorts in a losing position.
That is the risk one takes playing the short side. The powers that be are going to do everything they can to halt the bear and hurt the shorts. I think we can count on at least one more round of QE if not more. Bans on short selling are surely coming again and I wouldn’t put it past the government to massage the economic data even more than they already do to paint a better than reality picture.
Before this is all over I even expect Ben to start dropping dollars from his helicopter although they will call it rebate checks again. Whatever it takes, Bernanke is not going to allow deflation.
He already halted the most severe deflationary spiral since the depression in less than a year and aborted a left translated 4 year cycle with his printing press. That has never been done before.
I don’t know about you, but I have no desire to go up against that kind of firepower.
And if that isn’t enough to convince you the NY times had a feature article by Chicken Little, the sky is falling, end of the world himself Bob Precther.
If sentiment has gotten so bad that the NY Times is giving interviews to Bob Prechter is must be time to back up the truck on the long side.
(no thanks I’ll just stick with my miners)
With all the talk of head & shoulders top, which everyone sees by the way and thus is unlikely to play out, I thought I might throw out a slightly different interpretation.
I wonder how many people see the inverse head and shoulders pattern that might be forming.
I haven’t heard anyone talking about that, which probably makes it a heck of a lot more likely than a straight collapse predicted by the vast majority.
I already showed the reasons why we should expect a major bottom soon in the last post. Heck we didn’t even break to new lows today and we do have another intra-day reversal so it’s entirely possible we got the low yesterday.
If this unfolds, how many bears are going to get destroyed…again? I suspect quite a few already took a beating trying to sell into the February bottom. If the level of traffic on the blog at the time is any indication the bears lost a lot of money on that wrong call.
Like I’ve been saying for months and months why would anyone want to trade this manic market? You are just asking for pain either long or short. The only market that is still in a secular bull is the precious metals market.
In that sector you have the luxury of a safety net under you. Any mis-timed entry will eventually be corrected by the bull.
I’m going to go through some signs that rabid bears might do well to pay attention to because I think the market is very close to a major bottom. (That doesn’t mean we are guaranteed to make new highs, although we might. Just that we can probably expect an explosive rally soon, even if it ultimately turns out to be a counter trend rally in an ongoing bear market.)
First off way too many people are counting on the head and shoulders pattern taking the market directly down to 850. Folks historically these head and shoulder patterns have a success rate of about 50%. A coin toss. Didn’t we learn that lesson last July?
Anyway on to the charts.
My friend Doc noticed that the market dropped down to the 75 week moving average yesterday and bounced strongly. You can see that during the prior bull the 75 week moving average acted as final support during the entire bull market. That level also happens to be the 38.2% Fibonacci retracement of the entire cyclical bull move. Not an unusual correction in an ongoing bull on both counts.
Next we are now right in the timing band for a major intermediate cycle low.
At 21 weeks it’s just way too late to press the short side. You risk getting caught as the intermediate cycle bottoms initiating a violent short covering rally.
Next, breadth is diverging massively during this final move down. As you can see the NYMO often diverges at these intermediate cycle bottoms. The divergence at this point is the largest in years.
And least of all we now have a momentum divergence forming on the daily charts.
Finally I’ll point out that the February cycle bottomed on a reversal off the jobs report. I think it’s safe to say the market has already discounted a bad number so we could see shorts begin covering in a buy the news type trade, even if the number is bad. And if it’s good we will see the market gap higher huge, trapping shorts and throwing gasoline on the fire of a short covering rally.
It’s just too dangerous to continue pressing the short side at this point. Better to just step aside and not risk getting caught in the intermediate bottom that WILL happen sometime soon, maybe even on today’s employment report.
Everyone is fixated on the stock market or the gold market. Meanwhile the real story is unfolding right under every one’s nose in the currency markets.
Today the dollar broke down violently from the recent crawling pattern that has been forming along the 50 DMA. When these patterns break down they tend to move aggressively, usually down to at least the 200 DMA .
I’m not at all sure the dollar will stop at the 200 DMA though and here’s why.
We’ve already seen a mini-crisis in the Euro. We know the Fed printed trillions of dollars during the period of QE. You simply can’t debase a currency that way and not have repercussions.
I suspect we are about to see the crisis that started in the Euro spill into the dollar. (This is how currency problems unfold they tend to spread like a cancer into other currencies.)
Don’t forget we have a major three year cycle low coming due next year in the dollar. Just on a cyclical basis the dollar is due to start moving down into that low. But we definitely have a fundamental driver for the move in the Fed’s insane monetary policy. Trust me Bernanke isn’t going to get off scott free from his printing spree. The market is going to make him pay a terrible price for his foolishness.
That price may be about to come due.
Needless to say once the cancer spreads into the dollar it is going to power the next leg of the ongoing C-wave in gold.
Now isn’t the time to let emotions control you, the correction in gold could end at any time. If you aren’t on board you will quickly find yourself chasing an overbought market.
Now more than ever investors need to heed Old Turkey’s wisdom.
I noted in yesterday’s daily update that we should be nearing not only a daily cycle low but an intermediate cycle low any day now. (the February intermediate bottom came on a reversal off the jobs report. Guess what’s coming on Friday?).
Not only that but sentiment is again back to bearish extremes. We are even starting to see the haters & trolls appear again on the blog (generally a pretty good sign of an impending bottom), although not as much because gold and miners have for the most part completely decoupled from the stock market.
Not withstanding all of that the market is now just about as oversold as it was in March of `09. There are only 27 stocks in the S&P trading above their 50 DMA.
You can see from the chart these kind of oversold levels always spawn some kind of bounce and often bear market rallies begin out of these kind of oversold levels.
Considering how late we are in the intermediate cycle the market is due to put in an intermediate level bottom at any time.
Now just isn’t the time to get brave and press the short side. Much safer to just let that trade slide on by than risk getting caught in an explosive bear market rally or a continuation of the cyclical bull which ever the case may be.