Using our simple daily chart I want to get you a look at the status of SPX, NDX and Dow. I have shaded the key levels from the August and September lows. Aside from the TRAN in the bottom panel (a leading indicator on the bear along with RUT, NYA, etc.) these headline indexes are still only testing the Aug-Sept lows. That is a warning for bears not to be greedy.
A weekly close at or above these levels would keep the bounce scenario alive. If a bounce happens, I am looking for the equivalent of SPX 2000 (or lower) to cap it. In bear markets and bear phases, short-covering can be violent (like yesterday) but short-lived.
The bottom line is that the market has long-since confirmed our ‘bear phase’ or bear cycle and so the trend is bearish. But expect volatility. My gut seems to think that the over sold nature of the markets and the sentiment backdrop can produce a short-covering bounce that lasts longer than a day. With the failure of yesterday’s rally to sustain anything, those who thought they could bottom tick are being washed out today. That could serve to bring sentiment to bleak levels.
Watch to see if the indexes hold the Aug-Sept lows. The important one is probably September since SPX is already testing the key 1875 area and NDX and Dow had made ‘higher lows’ at that time.