Serious, Long, Bear Market 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 77 stocks making new 52 week highs versus 1211 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 29.9, 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 after a modest summer rally attempt stalls, 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 remains underway, with an acceleration of the selling landing this week. The 2002 lows remain the downside target for this leg of the bear. There remains zero sign yet of the heightened capitulation selling to signal a reversal to the upside is slated to land anytime soon. All major stock indexes continue the pattern of lower high and lower lows, with Friday suffering yet another high volume distribution day. The fundamentals continue to show consumers hanging on by a thread now the rebate checks have been spent, while at the same time confirming the credit bubble implosion continues to pick up steam, with Fannie Mae and Freddie Mac this week's disasters. While we can expect some volatility of trading as the FED, Treasury, and Wall Street Plunge Protection Team try to prop up the collapsing markets, the numbers of losses involved, and depth of the leveraged debt problems, are simply too large to prevent the bear market from eventually turning nasty. The stock market is severely oversold, and thus due a bounce, though there have been many times in history where this set-up continued with the downtrend that led to a real bonafide capitulation melt-down without any major bounce landing. When the technicals show some signs of a washout 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: WAY DOWN. Be aware of, and prepared for, a genuine collapse going forward. Look to take profits on shorts on any capitulation melt-down, and look to add to short positions on any rally attempt, especially those that touch the 20 or 50 day MAs.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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