Friday, August 21, 2015

bear market ?

Here are daily charts of my three favorite long term stock market indicators posted as of yesterday's close.

You can see that all three are now trading below their 200 day moving averages. This is a long term sell signal according to my two out of three rule. Moreover, you can see that the cash S&P has staged a downside breakout from its long, February-August trading range and this has occurred on very high volume. This reinforces the long term bearish case.

The top chart shows the Dow labeled with point 23, the top of Lindsay's domed house. I don't think there can be much doubt about what is happening here. The entire three peaks and a domed house formation now calls for a drop in the Dow below its October 2014 low (solid blue line at bottom of chart).

Looking ahead I think these past two days of heavy selling will lead to a snap-back rally. But I don't think that the rally will carry the averages past the midpoints of the drop (dashed red lines). Both of these midpoint also sit right near the current position of the 200 day moving average which is normally resistance in a bear market.

My downside target is roughly the level of the October 2014 low (blue lines in the Dow and S&P). This would amount to about a 15% drop, not quite as big in percentage terms as the 2011 decline. I think the Fed will probably respond to a drooping stock market by holding off on interest rate increases and, if things look bad enough, will probably resume its QE program in some form. Such monetary actions will limit the damage to asset prices and limit the stock market decline to something less than a full blown (20% +) bear market. World wide liquidity is still being increased by the ECB, the Bank of Japan, and the Peoples Bank of China. I think this too will serve to limit the downside potential of this drop.


Adsense said...

Hi Carl
I think it is to soon to make the bearish case long term .
here is a few things to consider as this month comes to a close .
using the dow monthly chart with a broad view .
the 25 month moving average ( close ) sits at 16093
i have many targets surrounding 16190-16138 intraday
i have a daily close only target very short term at 16049.
so my bias is the 16000 area for my line in the sand .
timing wise here is my concern to the bearish side of this market
and why i think it is to soon to declare a bear market at this juncture .
the monthly closing high in the dow in dec 1999 to the print high and very close to closing high in oct 2007 counts as 94 monthly bars , adding 94 bars to the oct 2007
high i get this month aug 2015 . this may be considered a high to low to low count .
to add to this i took the low in oct 2002 to the low march 2009 this counts as 77 monthly bars. adding 77 monthly bars to the march 2009 low i get again this month august 2015 . ill call this a low to low to low count .looking at the past 20 monthly bars . ill start with the closing high in dec 2013 plus 10 months is the print low in oct 2014 plus 10 months is this month august 2015.
lastly is an observation .
in the early stages of this bull market we had numerous simple corrections
the only complex correction i see on the monthly chart is the time frame from may 2013 to oct 2013 .my bias is becoming yet i know better than to question the market if proven wrong . my bias is we are in the second complex corrective pattern of this bull market . depending on how you look at it . this complex structure could have begun as far back as dec 2013 . that was 20 months ago . the long term uptrends are very much intact .
this is a bit of a stretch yet ill add this in closing .
taking the bottom in 1974 and drawling a trend line using a log scale chart and touching the crash low in 1987 and letting that line run up to today the line sits at 15453 for this month .
drawing a trend line using the march 2009 low ( non log scale chart )
touching the low in oct 2011 and letting it run up to today . the line sits this month just above the 25 month moving average ( close ) at 16192 . this level happens to be the 700 dma ( close )
ill finish with one last thought .
looking at market collapses over the past i have noticed that the C wave tends to be 2.2 times the A wave more times then not . i use both the 2.2 and the 3.2 because i have looked at it ans seen it work several times .
The may 2015 High in the dow at 18351.4 to the july 7 2015 low at 17465.7
totaled 885.70 points . multiplying that by 2.2 you get 1948.54 pts.
taking the high on july 20 at 18137.10 ( i dont get good decimal quotes when the market is closed so this if in error is decimals yet you get the point )
18137.10 minus 1948.54 comes to 16188.56. this again surrounds the 700 dma ( close )
18351.4 minus 16188.56 equals a total of 2162.84 points 11.78 % decline .
i dont see this as much of an extreme yet many are calling for the great depression
and im seeing this more as more of the same .
good luck

Christian Gustafson said...

3PDH for the win? She sure is steep.

Complete by December FOMC?

Cheers, Carl!