Monday, February 08, 2016

stock market update

Since the January 20 low the US stock market averages have swung up and down in a fairly wide range, But all of this activity has occurred at levels well below the declining 200 day moving averages (red lines) you see in the top three charts. All three of these trend indicators are in definite bearish configurations.

Right now I think that the February 1 highs either ended or are close to the end of the move up from the January 20 low points. My best guess is that the averages will fluctuated between their January 20 lows and February 1 highs for a couple of more weeks before dropping below the January 20 low points.

Traders sentiment as reflected in the 5 day moving average of the CBOE equity put-call numbers is in the middle of its recent range. My guess is that it will move lower before another extended drop begins.

The bottom chart shows my estimated downside targets in the S&P 500 index. The closest one is at 1730, the confluence of the bull market trendline and the .382 retracement back to the year 2011 low point of 1075.

My worst case scenario is a 25% drop to support in the general vicinity of the year 2000 and year 2007 bull market tops at 1554 and 1576 respectively. The 1600 level is also the halfway retracement back to the 1075 low of 2011. The 1573 level is the .382 retracement of the entire 2009-2015 bull market in the S&P 500.

I think the Fed and other central banks are growing increasingly concerned about deflationary world financial conditions. I doubt that the Fed will increase rates at all in 2016. In fact I suspect that an overt move towards monetary ease will turn out to be the Fed's next step. Unfortunately it will probably take more bearish action in the US stock market to trigger this policy change.

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