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.

15 comments:

Hugh Jazole said...

Yes, we are VERY close now! I see people on bearish blogs once again turning bullish. The BPSPX is confirming a major bullish bias. I doubt we even make it to March before the downtrend begins in earnest.

Christian Gustafson said...

Don't forget the BULLISH case, though, Hugh.

That would have the 1810 SPX low as "C of 4", with a 5th wave, and new highs, still ahead of us.

And it is still possible if the corporations are still buying back their shares with fresh debt, the CBs are dovish and scared, and China draws down their FX kitty. New highs are still possible from here.

Depriv said...

That's it. Well done. Both of the main conservative variations mapped.

My humble opinion is that it'll be anything but conservative, but that's just me.

We will see.

Hugh Jazole said...

A nice distraction from the boring market. Oh yeah, more of this please.

https://www.youtube.com/watch?v=zoJizBrXR08



Depriv said...

So far this upward movement looks like a really cruel 'c'.
It's not a good place to get a 'c'. Trick or trap.
Also, a 'c' is really hard to kill. Like a zombie. Or a vampire. It always comes back.

Hugh Jazole said...

Is this it!? The beginning of the end!?

Bryan Franco said...

I think so. Cyclicals reversed the most today. Very interesting floory action in oil. Last push.

Bicycle said...

descending tri

Hugh Jazole said...

I know everyone is looking for a run to 1950 - 2000, but I think this may have been it.

john said...

http://youtu.be/om5rbtudzrg

Hugh Jazole said...

From a blog I follow that discusses Artificial Intelligence. This post is about how AI can affect the stock market, and may already be in use.

“In past updates I suggested that the first applications of artificial intelligence would occur in the stock market, because mutual funds and hedge funds would fund the development of the required AI to beat the market. Of course these investment companies would not make their applications of AI public because that would either discount their value or make the government take action to remove these obvious advantages over the average investor.

But I believe that their trail is obvious if you look at a chart of the S&P 500 for the last five years. You will see that the character of changes in the S&P 500 have changed dramatically in recent years. Both the percent of change and the velocity of change have increased versus earlier periods. You can look at this on either a linear or log chart and you will see the same thing. Note Oct 19, 2014; Aug 16, 2015; Oct 4, 2015; and Jan 4, 2016.

This is not enough data to conclude that this is statistically significant to a 95% confidence level, but it is getting close. And it certainly is worth watching.

As I have said before, I would not try to play the general market with what is going on. Buying a specific stock for its growth potential may be valid. But in my opinion, the overall market is now being largely influenced by AI programs.”

Bicycle said...

It's been in use for a very long time already. Machine Learning for stock trading is one of the primary markets for distributed systems tech. They talk about it plenty. The regulators are well aware and are using it themselves. I was just at a conference last year where FINRA was talking about their tech. Even FINRA runs on AWS!

Depriv said...

Hugh,

I think the volatility on the markets is not because of AIs (and other algorithms) actively trading, but because it's just the closing part of an era.
There is just too much money around and too much problems tucked under too much rugs.

The traditional way to make the problems disappear is to wait till inflation makes them insignificant - but right now inflation is thought to be a so scary monster that many things needs to happen before it becomes acceptable (for example, a big wave of deflation, most likely).

End of an era: the beginning of a new one. Of course it's volatile.

Hugh Jazole said...

Did you call it this time CG? Awfully close to 1957 today, and after hours getting interesting.

Christian Gustafson said...

I think we've got some more time on this, Hugh.

I'll post a chart in a bit.