Bear Market Rally Is Over, Selling Very Likely Resumes

SGS Market Timer Status:  SHORT 
Short as of close of 12/11/2015

Current Portfolio (2016)
Past Portfolios (2008-2015)

Long Term Outlook (Weeks to Months):

The recent bear market rally that started on January 20, came to a spectacular end last Friday as SPX rallied about 2.5% on the back of massive short covering caused by BOJ adopting negative interest rate policy and oil market stabilizing.

On its weekly chart, shown above, SPX found resistance at one of its old Primary Downtrend Lines (PDL-1) on Friday.  Chances are excellent that SPX starts to sell off this coming week to test its Tentative Uptrend Line (TUL, pink line) and its recent lows (1812) in the next couple of weeks.

Should support at TUL fail, SPX very likely would sell off more to test its Primary Uptrend Line (PUL-0, thick black) around mid 1700 sometime in mid to late February. My guess is that the Fed would intervene at that point by giving back its December 0.25% rate hike and going back to ZIRP again.

It's doubtful if going back to ZIRP would end the bear market.  Eventually, trying to stop a recession, the Fed would be forced into starting another round of QE later this year (sorry Donald, you will lose in the general election to the devil that BM knows well).

Short Term Outlook (Days to  to Weeks):

Shorter term, SPX very likely starts selling off early this coming week, very likely on Monday.

MY Plan:

I'm still 100% in cash and planning to open first of 3 short positions in SPY sometime on Monday.

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Rally Very Likely Continues For Days To Weeks

SGS Market Timer Status: SHORT 
Short as of close of 12/11/2015

Current Portfolio (2016)
Past Portfolios (2008-2015)

Long Term Outlook (Weeks to Months):

Twenty five years of trading history of SPX is shown in the quarterly candle stick chart above.  Each candle stick represents a quarter.

In the last 25 years, as marked on the chart, every time SPX had closed below its 13 Quarterly Exponential Moving Average (13 Q-EMA), it continued its sell off for at least four more quarters (a year) unless the Federal Reserve (the Fed) had intervened.

In first quarters of 2001 and 2008, for example, SPX closed below its 13 Q-EMA and continued its sell off for at least another year. In both of those bear markets, SPX corrected over 50%.  The selling did not stop until the recession was ended by a massive infusion of money into the economy.  In 2003, the Iraq War stimulated the economy and brought it back from recession.  In 2009, the Fed directly stimulated the economy by a massive bond buying program (Quantitative Easing, QE) which stopped the financial meltdown and ended the recession.  Going forward since 2009, the Fed announced another round of QE every time SPX closed below its 13 Q-EMA (QE-2 in August of 2010 and QE-3 in October of 2011).

Last Wednesday, SPX penetrated its 13 Q-EMA by over 2% which was deep.  My 20 year trading experience has taught me that a deep penetration (more than 0.5%) of a support or resistance signals a high likelihood of failure of that support or resistance at a near future retest.  Two percent penetration is quite deep which means that chances are excellent that SPX tests its 13 Q-EMA soon and closes below it.

Knowing what the Fed has done since 2009 and assuming that SPX sells off and starts trading below its 13 Q-EMA, the $64,000 question is: would the Fed intervene again?  My best guess is that the Fed would come in and shore up the market once SPX sells off to test its quarterly uptrend line (shown in thick blue) around 1700.  I think chances are good that the Fed would give back its December rate hike (0.25%) and would assure the market that its ZIRP (Zero Interest Rate Policy) would continue for a while, at least for the remainder of 2016.

Short Term Outlook (Days to  to Weeks):

Shorter term, indices are still oversold.  Chances are good that the bear market rally that started on Wednesday continues for days or possibly weeks.

How far SPX retraces back its recent decline is a crap shoot.  My best guess is that SPX could retrace back around 50% to 60% and test the resistance at 2000, especially if the Fed puts out an extremely dovish FOMC statement on Wednesday.

MY Plan:

I'm 100% in cash now and planning to start opening short positions (3 short positions  in SPY) as SPX peaks around 2000.

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

A Bear Market Rally Is Imminent

SGS Market Timer Status:  SHORT 

SHORT as of close of 12/11/2015
Current Portfolio (2016)
Updated for recent trades
Past Portfolios (2008-2015)

Long Term Outlook (Weeks to Months):

Last week on Thursday SPX penetrated  an important trend line support (line connecting lows of Oct 2014, Aug 2015 and Sep 2015), then rallied intraday and closed above it.  On Friday SPX tested that line again, penetrated it by more than 0.5% and closed below it.   That is awfully bearish and signals more selling ahead.

Also last week, SPX, on its monthly chart, broke through its 23 M-EMA (thick red on monthly chart above) and began trading below it.  Since March of 2009, every time SPX has closed (on monthly basis) below its 23 M-EMA, the Fed intervened either by announcing a new round of QE or continuing with their ZIRP (Zero Interest Rate Policy).  So if SPX closes below its 23 M-EMA this month, which is very likely at this point, it would be how dee doo dee time for the Fed, again :).  More on that next week.

Short Term Outlook (Days to  to Weeks):

Shorter term indices are extremely oversold,  Chances are good that SPX, after possibly testing support at its TUL around 1860 on Tuesday, rallies higher on the back of a bear market short covering / profit taking rally to test 1920-1950 resistance zone sometime later in the coming week.

MY Plan:

Last week on Monday, I covered my short positions in SPY.  I'm 100% in cash now and planning to start opening short positions (3 short position in SPY) as SPX peaks around 1950.

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Indices Are Oversold

SGS Market Timer Status:  SHORT 

SHORT as of close of 12/11/2015
Current Portfolio (2016)

Past Portfolios (2008-2015)
 

Last Tuesday SPX broke to the down side out of its symmetric triangular formation and continued to sell off for the rest of the week.  On Friday, SPX penetrated and closed below its TUL while its 50 D-SMA touched its 200 D-SMA to put a "death cross" on its daily chart.  SPX chart looks extremely bearish now and it's signaling significant selling ahead in the longer term (weeks to months).

Shorter term (hours to days), however, SPX is oversold,  Chances are good that SPX, after possibly testing support at its AUL around 1890 on Monday, goes higher on the back of a counter trend rally to test resistance at its PDL-1 (1960) and ADL (2000) sometime later in the coming week.

My Plan:
 

Last week I didn't open my third short position on SPY as planned. My plan is to open my third short position once SPX peaks (around 2000) on the back its counter trend rally.  Should SPX sell off early Monday and successfully test its AUL (around 1890), I would cover both of my currently open SPY short positions. 

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SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.

Selling Very Likely Continues

SGS Market Timer Status:  SHORT 

SHORT as of close of 12/11/2015
Current Portfolio (2016)

Updated for recent trades

Past Portfolios (2008-2015)
 

After a false break out to the up side out of its symmetric triangular formation last Tuesday, SPX continued its selling during the final two trading days of 2015.  SPX is now trading well within its symmetric triangular formation.  At this point chances are excellent that SPX tests its AUL (lower boundary of sym. triangular price formation) and 100 D-SMA around 2025 to 2020 on Monday or Tuesday as massive profit taking ("tax selling") hits the market. 

Longer term, I expect SPX to continue its selling to test last August / September lows around 1870 by mid to late January.

My Plan:
 

Per my plan I opened my second short position in SPY last week (Thursday open). My plan is to open my third short position once SPX closes below 2020.

Season's Greetings and Happy New Year

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facebook (daily updates)

opader@gmail.com

SPX: S&P 500 Index    D-SMA: Daily - Simple Moving Average
DJI: Dow Jones Industrial Index    D-EMA: Daily - Exponential Moving Average
DJT: Dow Jones Transportation Index    PDL: Primary Downtrend Line
NAZ: NASDAQ Composite Index    PUL: Primary Uptrend Line
RUT: Russell 2000 Index    ADL: Active Downtrend Line
OEX: S&P 100 Index    AUL: Active Uptrend Line
NDX: Nasdaq 100 Index    DTL: Dynamic Trend Line   
TUL: Tentative Uptrend Line   TDL: Tentative Downtrend Line  

Disclaimer: The views expressed are provided for information purposes only and should not be construed in any way as investment advice or recommendation.  Furthermore, the opinions expressed may change without notice.