The US Stock market is generally in a downtrend by daily and weekly charts. This means that the trend is down in all but the monthly time frame. The monthly is a laggard and only turned trend down into the last 2 big bear markets in 2000 and 2008. The weekly and daily (not to mention 120 min., 60 min., 30 min.) indicate a down trending market. Therefore we can state the market is for all practical purposes, in a downtrend as the bounce did not erase the damage of the August decline.
What do active players do in a downtrend? They short the bounces, opposite of buying the dips in an uptrend, or they hold cash as we have been recommending for months now. The rise in SPX to 1975 and 2020 and several other indexes to their 50 day moving averages was the ‘bounce’, as we have been calling it.
As you know, I wrestle uneasily with the wildly over bearish sentiment data (a bullish contrary indicator) but price is the driver. As you also know, we are not making conclusions on any resumed downturn beyond an expected near-term test of the October 2014 and/or August 2015 lows. If the low fails, the next target is SPX 1700 to 1750 at channel support per a monthly chart reviewed recently.
If the lows hold, we may be looking at a big opportunity to get bullish while everyone is bearish. That is where I think the troubling sentiment data (if I am a bear, which I am in the very short-term) comes in. If we hit major support and the average market participant is even more out on a ledge sentiment-wise, we may need to consider that this whole event was indeed a massive shakeout prior to the bull’s mania phase.
If the lows fail, then that is a lower major low and bear market rules would apply. They would generally be the same as the downtrend rules currently in play on the short-term, short (or sell) the bounces and hold cash, but over a longer time frame.
My schedule during the day is still challenging and likely to remain so for a while yet. So I am going to try to keep updating mostly to pre and post market hours, when the dust has settled and I can simply review what I see without concern of whipsaws and inflammatory news items moving markets during the span of a post, which has happened all too often!
We have had a sketch going ever since the market started to establish its daily downtrend (as SPX dropped below both the 50 and 200 day moving averages and the nose of its former Diamond consolidation) back in mid-August. Since then we dropped to major support, planned a bounce to 1975 and/or 2040 and have been preparing for a next leg down to a test of the August lows.
Beyond that, nothing is resolved but the bears have the ball… and the daily and weekly trends.