Allow me to share with you some crude artwork to illustrate the rough path most likely for US stock markets in the coming weeks through year end. I thought a simple cartoon might suit our needs nicely. The black lines are what have been, up to today. The blue is how this type of correction might typically unfold.
Be clear that any talk of long positions that I personally hold (despite a bearish intermediate view) is based on a would-be short-term bounce possibility in the broad market (and the long-term support zone on the Semiconductor index) and a would-be test of the breakdown (red line) and nothing more.
I have been doing a lot of trading both long and short, having a good time with this volatility. But the stance is intermediate bearish pending resolution of the cartoon’s message. Anything can and will be traded in a heartbeat in this market until real bottom making comes about.
The next solid trading opportunity would in my opinion be from the bear side and then a couple months down the road, perhaps during Santa season, a very trade-able low could get put in for an extended rally. We’ll just have to let things evolve.
Turning to our in-week management charts, the red line above is expected to hold as resistance and come in the form of the August lows, up to the points labeled 1 on the charts below (favored resistance). If that is exceeded, resistance 2 & 3 would come into play.
It is likely a new down leg would follow such a test of the breakdown (where ever the indexes find resistance). With the downside subsequent to the last update of these charts, the August low up to point 1 looks like the best candidate to halt any short-term bounce, if applicable.
Dow bounce projection: August low around 16,350 & Point #1 & SMA 200 (16,600)
SPX bounce projection: August low and SMA 200, around 1910
NDX bounce projection: August low around 3850 up to 3900
A projected bounce, suspect as it is on a Fed official’s jawbone (Bullard today, who tomorrow?) is not recommended as a trade.
An upside test of the breakdown may work out for bearish traders.
A more stable bottom could come about after the next shoe drops.
At least that’s the plan as of today in rapidly evolving markets!