US Stock Market – A Scenario Presents Itself

Well, a speculated upon ‘M’ rally may or may not be starting today, but NFTRH 494 fleshed out this scenario on the way to completing a comprehensive report across all major markets. I know I am the guy with the confusing indicators that make some peoples’ eyes glaze over, but I am also the guy guiding myself and NFTRH readers with more conventional and accessible (at least I think it’s accessible) charting every step of the way as well.

I bought back a sizeable chunk of QQQ this morning after taking profit on it last week, in large part due to the analysis in #494.

A Scenario Presents Itself

Last week due to the overdone news (media blitz) about the decline of big Tech we allowed for a rally. NDX went down on Monday, made a big rally and then got Trumped on Friday. The same pretty much goes for the rest of the market. I would rather not have the Trade War stimulant in the mix when trying to manage a potential bear phase, but that’s what we’ve got. The volatility, as expected, is intense.

Referring to 2015 we see that SPX aborted that analog several weeks ago as it resumed dropping. VIX resumed its rise unlike in 2015. That 2015 return to complacency fueled the 2nd decline of the larger ‘W’. In the context of similar time periods, the current SPX situation is doing the opposite to 2015, as it has dropped to test the lows amid rising volatility instead of bouncing to test the highs amid declining volatility.

When VIX rebounded into the 25-30 range in early 2016 the 2nd low of the ‘W’ was put in and the correction ended. VIX hit 25 last week and dropped back to 21.49.

One possible outcome is that enough fear may be getting stirred up into earnings season to instigate a rebound and test of the highs. Taking the scenario further SPX could then make a larger double top ‘M’, whereas 2016 finished a ‘W’ bottom. If nothing else, it would be poetic justice to the ‘2015 top’ (that wasn’t). Considering earnings season, jangled sentiment and the SPX daily chart gap above 2850, let’s not be surprised if – possibly pending more short-term whipsaw – a rally toward the highs ensues.

spx, vix

US Stock Market

Alternatively, we can continue to watch for potential ‘lower lows’ signals using daily charts. Those would establish downtrends and then per the big picture monthlies we may begin managing a cyclical bear phase to the noted support area on this big picture monthly. Notice how the trend line meets up neatly in the 2100s.

Dow’s commensurate level is the 18,000s.

NDX major support is around 4500.

But now let’s use this index to illustrate how chartists can have you see whatever their bias may want you to see. A more bullish interpretation could be presented by the log scale chart. If the chartist is bullish he talks about a top rail of a long-term breakout. If she is bearish she notes all that distance down to major support per the linear scale above. What both charts show however, is that NDX has not even lost the 1st supportive moving average (nor has it lost the daily SMA 200, as we’ve been noting). Using moving averages helps us minimize the bias a chartist may present, knowingly or unknowingly.

Turning from these big pictures, let’s also take a look at small pictures. In support of the potential ‘M’ retest of the highs scenario is a pattern grinding out on the SPX 60 minute chart. It’s got MACD divergence as well.

Remember as well that the daily SMA 200 (chart on page 9 *not included in this post*) has not been lost for more than 1 daily close, which was a head fake.

NDX 60 minute is similar.

It’s bearish out there! So much so that I did a lot of nothing on Friday because I am balanced and the market has not yet done something actionable. The market is currently whipsawing everybody in a volatility extravaganza.

However, more and more daily sector charts are creeping bearish and at some point Mr. Balance here is going to lean. That lean may be bullish for a would-be (still just theoretical) ‘M’ bounce, but if all goes well :-) it would then be bearish because today’s average market participant really needs to get cleaned out (per my bias). If they think that what has happened so far in 2018 is terrifying, they ain’t seen nothin’ yet, based on history’s various bear market lessons. In a bear market the pain would be dull, leaden and unrelenting. Right now it is the sharp, acute pain inflicted by a whipsaw.

But with the ‘M’ scenario (a developing potential option) introduced this week we should be aware that often these things do not unfold on convenient time frames. For example, before the Q4 2008 bear climax there was at least a year of volatile top-making. January 2018 may have started a clock ticking, but let’s be aware of time frames and the agonizingly long durations they can extend with a primary result being to confuse as many people as possible as we humans see things and make interpretations in real time and markets tend to move in much slower motion than that.

NFTRH 494 then proceeded on to daily charts of individual US market sectors, global stocks, commodities, precious metals, currencies and the whole shebang. In sum, the report tuned me up nicely. Frankly, I can’t live without it, which why it is a pleasure to have the honor of writing for NFTRH subscribers each week. I end up a different investor every Sunday than I was on Friday night.

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