From Monday’s pre-market update…
“Based on this morning’s futures, it looks like the stock market may try to convince us that it is done consolidating below the top of the ‘W’ pattern and could be ready for another bounce leg. But the gap open projects to 1940, which is still below the ‘W’ high of 1947. Realizing this and that Mondays can sometimes be head fakes before Tuesday reversals, let’s just say that the market has not proven anything until it proves something.”
It has not proven anything. SPX rose to 1946.70 and halted. Yesterday it reversed downward and this morning the futures are -.94%, projecting an open around 1903 and a test of the (orange dotted) EMA 20. What I don’t like if I am a bull hoping this is just a consolidation below resistance is that there was already a consolidation on Thursday and Friday before Monday’s up surge to test resistance. Yesterday may have been expected to be weak but a second day in a row would be a real sign of weakness. Reference the October situation where SPX attacked the 50 day moving averages, smashed through, tested and then was off on its bullish way. What I am hoping if I am a bull is that this would be just another test of the EMA 20, like Friday.
It is only the futures as of now, but if the market follows through with a significant bearish day it would go along with our theme that this bounce was not expected to be nearly as strong or long as the previous specimen (even if the best target of 2000 were attained). A close below 1900 (and Friday’s low of 1902) could open the door to further downside and make this ‘W’ unlike the August-October ‘W’. But let’s not put the cart before the horse; even at the current futures level, SPX is above 1900.
Moving to the bigger picture, here is the ‘talky’ weekly chart, advising that the efficacy of Central Bank policies and Jawbones is on the wane and so too, is confidence in their all-omniscience.
I took a profit on the MKSI short yesterday and replaced it with a non-leveraged short on SPY. As implied by this weekly chart, I would like to add to it on either the somewhat weakened chance of a bounce to SPX 2000 or resumed weakness, as a break of critical support would then target the 1500’s (150’s on SPY).
Finally, for more perspective, here are the multi-index weeklies. It would be quite a sign of weakness if these headline indexes cannot even levitate to test the EMA 50’s.
The broader market is interesting because while WLSH and RUT have not gotten close to resistance the Transports, which have led the overall market to a downturn since early 2015, have bounced significantly and the NYSE is at resistance.
As noted, sentiment, while still over bearish, has bounced to a point where there is no longer an extreme. So a bear stance is not fighting against strenuously over-bearish sentiment. I should note that a bear stance can and for most people probably should be CASH. But we will continue to follow the process for those who want to trade this market both ways.
It’s only the futures but barring a reversal, technical damage to the bounce is going to come into play if SPX loses 1900. Bigger picture it is and has been a bear trend. Bear markets are in process in certain outliers but the headline indexes do not confirm ‘bear’ until they lose the green shaded support zones on the 4th chart above.