Major Bear Market Downleg Underway

Trader Talk

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, confirmed with a very bearish leadership profile, with Friday's close yielding 44 stocks making new 52 week highs versus 900 stocks making new 52 week lows.

The 4% rule remains negative, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 26.4, showing some acceleration in fear, though well shy of anything that would signal the sell-off has suffered a capitulation needed to signal a turn positive. The primary Elliott wave count continues to suggest a wave 3 melt-down run is underway, with the current wave count wave (i) of Wave 3, though an out-right crash at this point is not out of the question.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

The technical ducks all continue to confirm a major bear down-leg is underway, with an acceleration of the selling expected to land soon, with the 2002 lows the target for the stock indexes for this leg of the great bear. Such prolonged and deep bear phases do not end until we see some form of capitulation selling that results in a rapid melt-down. Sentiment continues to remain complacently bullish, thus no major rebound rally or change in trend from bull to bear is slated to land anytime soon. The S&P500 broke below the March lows, making a new 52 week low in the process, confirming the Dow Industrial's breakdown run of a couple of weeks ago. Low volume on rallies, high volume on sell offs, an expanding number of stocks making new lows, the stocks indexes joining that expanding list of new lows, confirm we are in an on-going bear market of some significance. When the technicals show some signs of a wash-out of the bulls, or indeed some sign of buy interest from traders and investors, we will change our stance. But so far all investment ducks point in the same direction. Be wary of, and prepared for, a genuine collapse going forward, as we believe strongly that we've seen nothing yet, despite the stock indexes being down very hard on the year.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com
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