Monday, February 29, 2016

Charts 02-29: More more bearish case

The G-20 passed on a coordinated effort to right the ship, so it's looking less likely that we will get new highs.  They are still of course possible -- witness China discussing selling ABS based on NPLs!  The madness and desperation are still out there, and it is always possible that they squeeze this higher one last time.  It's just looking less and less likely now.

So let's update charts for the bearish case, which would have us in a wave 2 bounce off the 1810 SPX low.  We still have plenty of time and chart room to finish this up, maybe something like this.

SPX 02-29 60D

Analysts have been rumbling about March, and I suspect they are right.  But the upcoming move -- if a wave 3 dive -- would also eat up half or more of April as well.

SPX 02-29 1Y

OK, so let's keep going with this.  We complete a 5-wave impulse lower into mid-July.  This leaves us with ample time for a true crash, a wild destructive market panic, into the election this fall.  Worst case is a full-on collapse to 540 on the S&P 500.

SPX 02-29 2Y

... which would complete our old friend McHugh's mega-pattern, the "Jaws of Death".

SPX 02-29 all

So there's your worst case for 2016.  After the final low, figure that the U.S. debt comes into question, and that President-Elect Trump can begin filing a national Chapter 7 bankruptcy for Uncle Sam.  The Donald Trump is the candidate with the most direct experience with bankruptcy, truly the man of the hour, so we wish him the very best in the remaining primary election contests.

Wednesday, February 17, 2016

The bearish case

With the 1810 SPX low secured now, we have a very reasonable-looking 5-wave impulse down on the board.

The question from my corner on this is whether that 5-wave impulse was "C of 4", a much larger correction on the reflation rally since 2011 (year), or whether we topped at the beginning of December, 2015, with an ending-diagonal that simply ran out of gas and "failed" to make a new high.

The bearish case is completely plausible, but rests on a failed 5th wave, starting, I would score it, at 2104 SPX.

SPX bearish count

We still have a few weeks of relief rally and games in store, before we need to pay attention again in mid-March.

The fall event would likely get us to long-term support in the low-800s SPX, the trendline up from the 1987 crash lows through the 2009 crash lows.

Sunday, February 7, 2016

Two head-and-shoulders patterns in play

One points down, one points way up (starting with a full retrace of January).  The tape obviously sits closer to the bearish one.

Each is plausible.  We're at one of those inflection points again.  Choose wisely.

SPX 02-07

By the way, if we were actually to thrust north and make new highs, the reaction off that move would be extremely severe and include a May crash that would make the old May 6 "flash crash" look like Canasta night down in Green Valley, AZ.