Intermediate term view - bottoming for a few weeks
It is stunning - the move is developing exactly like the move in August. 2/3 months corrective move followed by a plunge for 6 days and China yuan devaluation is the excuse again.
I do not see a reason for a different conclusion than the one in August - this is not a bear market, expect several weeks bottoming and a move higher.
In the first phase of a bear market the prices are moving slowly lower for a long time - there is no "crashes" let alone two for a few months, everybody buying the dips and talking how much money they will make. Such "crashes" exhaust the bearish energy too fast, the traders get scared too fast.... this is typical for a correction in a bull market and not the beginning of a bear market. Look around in Internet everybody talking about bear market. In a real bear market this should happen in the second phase when the market really crashes 30%-40% of the top, now SPX is less than 10% lower from the top. My conclusion stays the same - the 7 year cycle is dragging the prices lower and the correction which begun in 2015 will continue in 2016, but this will not be a bear market which cuts the prices in a half.
The alternate scenarios are very bullish after this correction the bull continues higher or very bearish the markets continue plunging lower. I think they have low probability.
After a plunge what follows is a sharp bounce higher and retest of the low. The retest could be a higher low(like in August) or lower low. It is difficult to say in advance, so I see two options(see the second chart daily):
- retest with higher low like in August - than the move will be again only corrective three waves like in August. In this case I suspect this is wave b of B(green) of a huge expanded flat.
- retest with lower low - probably waves 4/5 and this will be an impulse which will finish a flat correction(red) from the top in 2015.
TECHNICAL PICTURE
Short term - waiting the next week to see how it will develop. No bottoming signals at the moment.
Intermediate term - here are the two scenarios. Red - several weeks to finish an impulse for a flat correction and wave X higher. Green - reversal higher which means only three waves lower and probably higher high for expanded flat.
Long term - probably more complex correction, but the same idea correcting in 2016.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - oversold and some of them with divergences. I think market breadth says we are close to a bottom...
McClellan Oscillator - divergence, expect bounce higher.
McClellan Summation Index - sell signal, but divergence.
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - sell signal.
Percent of Stocks above MA50 - oversold like October 2014 and August 2015.
Fear Indicator VIX - level where usually corrections finish.. outside the BB expect move in the opposite direction.
Advance-Decline Issues - oversold and divergences.
HURST CYCLES
Like in August we will know the right count later when the move plays out. It could bottom now and this is the 20 week cycle low or continue bottoming for a few weeks which will mean this is the next cycle.
The same story it depends on how it will play out. Two shorter 20 week cycles or one longer.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Very high probability that the setup will be finished unless SPX closes above 1980 in the next two days.
For the first time in more than a year we have something on the weekly chart. If SPX stays below 2045 in the next 3 weeks we will have finished setup on the weekly chart.
P.S - The previous plunge was followed by 6 weeks of bottoming process with higher low.
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