Still a Bear Market

Trader Talk

The major stock indexes were down 2% yesterday so of course today they were up a similar amount, with such volatility no doubt good for the business of anti-stomach ulcer drug makers. Officially, the NASDAQ advanced 2.5% on 2.3 billion shares, while the Dow Industrials rose 2.4% on NYSE volume of 5.4 billion shares. The leadership profile remains negative, with 80 stocks making new highs versus 233 stocks making new lows.

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading Indicator. We have no new trades at this time.

The overall pattern remains solidly bearish, with the downward stair-step pattern of lower lows and lower highs remaining intact. As trend followers we do not need to be able to predict the markets to make money, and certainly no one can predict stock market turns and trends with any high degree of success over the long term. With that said, here's what we believe to be the higher probability plays going forward. The first is based on Elliott Wave and our experience of the breakdown/pullback historical pattern of expectation. That says since the S&P500 fell in five clear waves over four days prior to today's bounce, and today the S&P500 shows a Fibonacci 50% recovery of points lost during the prior slide, what should follow very soon is a continuation of the collapse, all as part of something very bad indeed for those long the market.

The second most likely outcome is based on our experience of technical analysis, which says those 50 day MAs shown in the charts below look mightly enticing to the bulls, and it wouldn't be a major surprise to see those technical-lines-in-the-sand be the final resting place for this counter-trend advance within an on-going bear market. We have seen no sign yet that the stock market wants to flip to bull mode, and we remain very cautious until the investment ducks start to turn for real. The next down move should be much more scary than we have seen so far during this bear, and we believe strongly that it remains a question of when the next down-leg of bear starts, rather than if.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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