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.


Christian Gustafson said...

Of course it goes without saying that a drop down to 1500 this Spring will do profound damage to the market and to the social mood here in the America.

Consumer spending will dry up overnight. A formal recession will be imminent.

Depriv said...

About the big picture: charts of some other instruments suggests that the expected Big Reset will not be done just so easily.
I admit that cross-referencing markets and charts has a bit of a voodoo in it, but if it works then the expected fall (if it comes,: if it comes now) will be just the 'C' of a BIG fourth wave.

So: down to the 500 (can be higher in case it's a running, not an expanding flat)(a year or so), up again to the 2k(3-5 years, maybe), then a slow and painful corrective down to the 500 again.

Just enough volatility to raise my pension funds a bit... When it's done I'll be exactly in that age.

Anonymous said...

It's looking like the guts of the downturn will be in the fall. Just in time for the election!

Christian Gustafson said...

OK, pull up gmail, do a quick search on my trash folder, and ...

Feb 19 (11 days ago)

to me
This message has been deleted. Restore message
scott has left a new comment on your post "The bearish case":

when will you get a clue? I went short yesterday 65%.

I usually don't read these, but this one I noticed as it slipped through the ether on its way to /dev/null.

Bryan Franco said...

Getting close. A little more risk on mean reversion in the high beta stuff and then kaboom before April. Thoughts?

observer1357 said...


That statement is pretty close to my thoughts. What are your upside targets on the S&P 500 for this current rally? IMHO, I think this rally finishes out somewhere between 2000 and 2050. One macro indicator I follow is the spread between junk bonds and US Treasuries. The spread has been declining and helping to support this current rally. However, the spread is still greater than 7%.

My strategy is to wait until this rally tops or is close to topping and then I will go short. I'm looking to short the midcap index and/or the small cap index. That way my position will be somewhat protected in the event that FANG(Facebook, Amazon, Netflix, and Google) or NOSH(Nike, O'Reilly, Starbucks, and Home Depot) go crazy on the upside for whatever reason. How do you plan on playing the next couple of months in this market?