Thanks, Donald.
From reading many revered SI posters over the last couple of days, there is a very distinct unison in looking for:
1. A weak 1-2 days bounce.
2. More downside, maybe a lot of downside.
I have found myself in a choir of very respectable voices. That, and the fact that in recent weeks my calls made some sense (a sure sign of a downtrend -g-), strengthen my conviction on the forthcoming next leg of the down move.
I believe that the Dow will encounter extreme difficulties in penetrating the upper line of the descending wedge (today 9325), not because the chart of the Dow itself shows it, but because of many outside reasons (some of them you named, like market internals and the apparent top in the Nuts) and my own opinion that the market leaders are the Naz big caps, and the NDX has clearly broken its uptrend line from the October lows.
Therefore IMO a 250 point move is almost out of the question.
If, however, by some miracle, the Dow manages to pop over that line then there is some life in that bull after all, and IMO we'll see a couple more weeks of limping rallies.
Since the SPX broke under 1220 confirming my suspicions that there is more downside ahead, I might as well outline the possibilities:
The benign scenario is that we are only correcting for the run from the October lows. In this scenario the SPX 1160 target could be the bottom of the correction, and new highs will follow in a matter of weeks / couple of months after that.
The crash scenario says we've started a correction to the move from 12/94 (!) - another version shared by some EW chartist says the July-October correction was the first leg of that correction and we've just started on the second leg - in this scenario we will see lower lows then the October low in a couple of months, and new highs on the major indices will not be seen in the next year or two. An extension of this scenario is the Millennium Crash scenario, were the upcoming crash is just the prelude to the biggest and meanest bear since the South Sea bubble crash over 200 years ago.
Given the IIA sentiment and many other indicators (also my fundamental bearish bias, I must admit), I tend to see the crash scenario as the more convincing one. But let's first reach the first target and see from there.
I expect the continued down move to begin in two days, maybe before Friday (fry day) close, so I'll be trying to compose a new bear spread / albatros / butterfly / whatever position on NDX February options (it worked well for me in the past two weeks), and use the ST gain to get vicious on March options should the downside materialize.
Excuse the long winded sentencing, it's hard to put my thoughts in writing given the time constrains.
Best wishes, and keep up the good work
Arik |
