All of the indicators turned bearish, except the third graph of the $bpspx, which went sideways. I went short with 25% of my speculative portfolio today. Double click the graph.
The next major bear market obstacle is 745 for the S&P. If the S&P bounces at 745 (likely a double bounce) and continues up after that, it may mean a continuation of the rally with the last two down days having been a correction. There should be a market battle at the 745 mark.
If the market breaks and closes below 745, it will likely continue down to retest the March 9 low of 667, and perhaps even lower. I will set my stop at about 755 when the S&P approaches 745. If I get stopped out and then the market continues down anyway, I can always buy back in at 730 to 740 as the market continues its march south.
As explained in a prior post, we need a retest of the lows before the market can stage a multi-month advance. "Without that, the odds are high that the current rally will end up looking very much like one of the five or six stock market rally attempts seen during the Great Depression, where prices rallied sharply, but could never sustain an advance. As a result, we are in a paradoxical environment, where for stock prices to truly begin a sustained advance, and truly indicate a real improvement ahead, prices need to go DOWN FIRST. DOWN is GOOD in the current climate."
However, if the S&P breaks and closes signficantly below 667, the next major stop would likely be 545± then 450±. This would not be good and is to be viewed as a major warning from the market that disaster lies ahead.
If the S&P rallies after hitting 750 but before testing the March 9 low of 667, then we should see a sharp rally that will take us to 850, and perhaps as high as 1,000. But without testing the low, the rally will be unsustainable and the market will eventually head back down to new lows.
Critical in this analysis is the market has to go bearish for there to be any sustained rally. That is to say if speculators remain only mildly bearish or turn bullish as they did during the Great Depression, then any corresponding rally will be shallow, which is why I monitor sentiment as any rally progresses. In a primary bear market like we are in today, any rallies must be treated as suspect. I view the $CPC and $CPCE as primary market sentiment indicators, which have been bullish in the past week.
All of this being said, the market can rally on Monday or Tuesday due to options expiration today. Options expiration removes market constraints from the hedge funds running into month end from an options (sentiment) perspective, and hedge funds control the market. After options expiration, hedge funds usually go long into the last week of the month, but this is not a hard and fast rule.
So the bottom line is to keep tight stops and watch what happens when the S&P hits 745, which should probably happen sometime on Monday or Tuesday. My rule is, never turn a trade that has gone profitable into a loser, no matter how small the profit. It's better to make a $100 profit than to lose several thousand. This can be difficult in a volatile market when the opening price is up or down from the prior day close, but I'll explain how to handle these situations in coming days. The point is, you can always find another entry point to get back in if it's a good trade.
If the S&P jumps up, then get ready to go long. Should this happen, the indicators on my graphs should show a sharp reversal. If the S&P proceeds down below 745, then add to your short positions and enjoy the ride. Wait for a double bounce up against the S&P 745 mark before adding to your positions. The 745 market will most likely be tested and retested unless the market is in a run-away down mode. Even then, it might be later retested.
All of this being said, I suspect a new leg down is now beginning.
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