NFTRH; US Stock Market Road Map

Now that the Dow has joined nearly everything else in marking a lower low to the August low and the sentiment backdrop is getting very bearish (per October’s reputation), a reversal can come at any time.  Yesterday, as the market was positive we NFTRH+’d* a bear trade setup on QQQ, but the market reversed downward again.  The parameters in that update still apply on any coming bounce.

Sentiment is getting constructive for a snap back rally.

sent1

sent2

At 24+, the absolute level of the VIX is not out of line with respect to previous market disturbances, but it is getting over done on the short-term.  The daily chart shows a burst of anxiety that does not seem in line with fundamentals (is the Ebola scare really that great?) unless there is something acutely broken that we do not know about (we have our junk to T bond ratios, etc. but also Yield Curves, TED, LIBOR, etc. okay).  The weekly shows that what ever is going on in this market has freaked people out beyond anything that has occurred since this post-2012 phase began.

VIX Daily

vix

VIX Weekly

vix

Returning to our short-term (daily) management charts of Dow, SPX and NDX…

DOW joined everything else and made the lower low to August and put a marker there for future reference.  Key resistance levels 1, 2 and 3 are noted for any bounces to come.  Recall how we used a similar method several months ago in GDX, laying out its resistance levels ahead of time.  On its rebound it finally stopped at #3 and failed.

indu

SPX is very similar.

spx

NDX as well.

ndx

Of course, with the way sentiment is shaping up, if by some chance the Ebola scare is the primary reason for the sell off becoming impulsive, the Ebola relief rally would be furious.  If a rebound gets going I would not want to be short against it.

What I want to do is use this market in both directions.  I have already held/added a few Semiconductor stocks as noted in this week’s report, and would get the heck out of the way with remaining shorts (several were covered yesterday) of any rebound that may ignite now that the Dow has officially announced its lower low to even the most casual market participant (i.e. the public that invests through investment advisers).  Anecdotally, they are getting nervous as a few people have woken up from their slumber and asked me what’s going on.

Bottom Line

The technical damage we have awaited is now in the books to the degree that even CNBC’s guests have to admit it.  But there is a heaping helping of hype in the market now with the FOMC and an array of Jawbones in the media since, fretting about the US dollar (that’s a positive), the Semiconductors all but finished because of one company’s outlook (I retain my doubts, but also respect this information) and of course Ebola, which like Ukraine and every other non-market related event before it should be considered a non-factor other than in its ability to provide a buying opportunity.

I am not saying a buying opportunity will materialize, but I am saying that geopolitical events and disease contagion are not bull enders.

Meanwhile, simple TA states that bounce back or not, technical damage has been done to the US market and we do not need to know the reason.  Bounce back or not, there would likely be another shoe to drop later.  The markets can recover all the way back to point 3 on the charts above and still remain negative.  So, taken at face value, that point – if it is attained, which is far from a sure thing – would be an excellent risk vs. reward short opportunity for another leg down (at least), even if the big bull market remains intact.  Stop loss is simple above point 3.  Meanwhile, points 1 and 2 can stop any rebound as well and more aggressive or bearishly oriented traders may try to work those I suppose.

Before any of the above takes place, the market has to actually make a low of course.  As of now, it has not yet hinted it has done so.

* A reminder that if you would like NFTRH+ updates emailed (as well as posted here at the site) just drop me a note.