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I’ve spent a lot of time this weekend examining charts, and rigorously challenging my assumptions regarding whether a new bull market could be starting or not. After studying the charts from as many angles as I could, including upside-down (well, more correctly: inverted), I remain of the long-term bearish persuasion.
I’m going to get right to the charts, because there’s a lot of them. Again, I believe the top is either in already, or will be after one more lunge higher.
The first chart I’d like to share is a long-term chart of the NYSE Composite Index (NYA). For new readers, I often like to examine the NYA because it represents a very broad look at the market, unlike the popular SPX and Dow, which have been culled of many of the weaker common stocks.
This NYA chart presents some interesting results. I’ve drawn a Fibonacci fan from the 1994 low to the 2007 high. I chose 1994’s low because it was the last important low before 1995, and I believe 1995 was (arguably) the start of the stock market bubble. Some may recall that 1995 was when Alan Greenspan gave his famous “irrational exuberance” speech. (That’s my recollection, anyway. Maybe I should look it up. Nah, I’ve done enough this weekend.) 😉
Notice how those Fib fan lines have acted as support and resistance over time. The 2008 crash started with a violation of one of these Fib lines. In 2011, the market “returned to the scene of the crime” and backtested that same line from underneath. The 2011 decline started there, and was then caught by the lower Fib line.
In red, one can also see a huge potential triangle which has formed since the 2007 top. Volume has been falling steadily since 2007, which confirms the triangle pattern. The triangle implies a move of 60% (6205 points on a measured basis) from the breakout/breakdown level, at either the upper or lower trendline.
There is a trendline of some importance which is called-out as well. This trendline has acted as support and resistance for many years, and has been well-established with seven touches. The market is still living beneath this resistance zone.
The massive multi-year potential head and shoulders pattern is also noted.
I did examine this chart in logarithmic scale as well, and both scales yielded many similar results. I’ve selected the linear scale for presentation purposes.
Next is the long-term Dow chart, which shows some similarities between the current market and 2008. It also shows how the Dow is still beneath some very important resistance levels, and notes the formation of a bearish rising wedge off the October 2011 lows. The pattern is now complete, with the requisite four alternating touches of the upper and lower trendlines.
Rising wedges imply a rapid return to the start of the pattern once broken.
Next is the daily SPX chart, which shows the series of potential reversal candlesticks which formed last week — right inside the target zone — and notes some areas where similar candlesticks have occurred. Not shown, the DIA and SPY weekly charts both show weekly topping/reversal candlesticks, and if the market gapped down on Monday, this would create a potential island reversal top.
Next is the chart of the hourly preferred count, which still believes that either the top is in place already, or it will be very soon. The implication of this chart is that a massive top is, at most, only a few sessions away.
The next chart is an indicator chart I touched on the day after it triggered, but I want to take this opportunity to remind readers that this indicator is still “hanging” out there, unresolved. This indicator suggests that the market still “owes” us a lower low beneath 1248, where the signal was triggered.
The final chart is a look at some alternate short-term potentials for the market to resolve the Minor (2) top.
The chart below is not my preferred count, but is instead provided to help readers recognize some of the additional possibilities still remaining.
The chart is an attempt to “think outside the box” and suggests a few final waves to confuse technicians and throw them off the trail a bit. Some Elliotticians are suggesting that the move from 1284 to 1265 is a leading diagonal first wave. This is plausible, however the first wave of an impulse move generally should take out the next key low, which that move did not. This chart suggests that said move may have been a leading diagonal a-wave, as part of wave iv of the larger expanding ending diagonal (see black count).
The blue count suggests the same alternate discussed on Friday, of a more conventional five-wave move to complete wave c of (y) of Minor (2). The chart notes some invalidation levels (knockout levels) for each count.
In conclusion, I believe the evidence continues to point to lower prices over the long term. My short term opinion hasn’t changed since Wednesday: either the top is in, or it’s very close. The US Dollar seems to be confirming this view (See US Dollar Update).
I remain of the belief that the October lows will not hold, and that the market is within days of beginning the next leg down, which should move rapidly lower once it begins. Trade safe.