Short term view - bottoming and relief rally.
Intermediate term view - I have the feeling the market will make one more lower low after a relief rally.
I lost faith that we will see fear:), but there we have it the last missing component for an intermediate term bottom.
The pattern is still not 100% clear.... definitely a bunch of corrective waves up and down from the top. The different indexes look a little bit different for example DJ is much stronger and RUT/Nasdaq look completely different anyway.
So there is no point to speculate which is the exact pattern. More practical approach - we have fear, 9 days lower in a row, the price reached MA200, RSI plunging to 28 very far form the trend line so expect at least a relief rally for several days. There is no signs for a reversal all indicators are pointing lower so I think the bottom will be tested with higher low or lower low. We will decide this when we see how the move higher looks like.
Why one more lower low? The US indexes have shorter cycles and I believe that the 40 weeks cycle was in September and now we are seeing move lower into 20 week cycle for wave A of 2(I was discussing it last week). I could be wrong 19+19 for 40 week cycle is so easy and so perfect to count everybody is jumping on this... but exactly this I do not like, it is never so easy.
I prefer lower low as an option because the EW pattern will look better, the cycles will look better, we will have divergence market breadth/TA indicators and both bulls and bears will be confused - the bulls trapped after a short rally and the bears shorting the bottom. This will be the perfect bottom.
Many are comparing with Brexit trying to find some logic. My logic is always the same watch the pattern and the charts. The market has it's path and it does not care about events which are well known for months. They cause only volatility for a few days that is all. Brexit is typical example everyone was expecting "good news", but the corrective pattern was not complete. I was talking all the time about expanded flat, strong impulse lower was needed, suddenly we had "bad news". Two days later the pattern was finished, the market has forgotten the "bad news" and continued on it's path higher. Expect the same - volatility, but at the end the market is in wave 2 lower until mid-March 2017 with a move higher expected for wave B after the current move lower is finished.... simple.
TECHNICAL PICTURE and ELLIOTT WAVES
Short term - the more bearish scenario from previous week is playing out.
There is many possible combination with so many zig-zags from the top in August... the count is not so important I am showing both ideas. A rally for a while does not mean necessary the bottom is behind us. It is possible to see one more low with divergences.
Intermediate term - look at the previous bottoms and the RSI levels. What do you think are close to a bottom or the move has just begun? Next RSI should try to snap back to the trend line. If we have V shape bottom the price should move above resistance(green) and RSI should reach the trend line. If we have only a relief rally with a lower low to follow(red) the price should find resistance around 2115.
Long term - the sell off this week strengthen the idea that we are in wave 2.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - the indexes a nearing a bottom, but no reversal signs at the moment.
McClellan Oscillator - moving higher for 2 days from oversold level despite the red days.
McClellan Summation Index - sell signal.
Weekly Stochastic of the Summation Index - at oversold level for months.
Bullish Percentage - sell signal, at a level where a correction bottoms.
Percent of Stocks above MA50 - close to oversold level, expect either divergence or sharp move move below 25 and reversal.
Fear Indicator VIX - at last some fear, outside the BB for several days, pullback lower expected.
Advance-Decline Issues - at last moved to oversold level.
I think the US indexes have shorter cycles and we need 2-3 weeks to finish 20 week cycle.
From peak-to-peak perspective - first we have 11 weeks lower which means the trend switched lower(wave 2 is running), second it is time for a few weeks higher to finish 20 week cycle from peak to peak.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Buy setup should be finished on Monday so at least a relief rally for a few days is expected.