Ian Woodward's Investing Blog

Stock Market: Scary Ride to Come or Up, Up and Away?

The Market Indexes have dropped on average 5.6% from their Highs posted on 5/22/2013, and the $64 question is “Are we in for a Scary Ride downwards or is this just a Minor Correction before we move up again?”

Scary Picture

As we would expect, the Floodgates have opened to the downside and recent support has been broken on all Indexes:

Scary Indexes

The Russell 2000 (RUT) took a hit but is still holding above 4% from its High:

Scary RUT

As previously mentioned, the Island Gap was filled and now we have a gap above to fill or we trot down to challenge -8% @ 3240:

Scary Nasdaq

Here is a Longer term view for the Nasdaq showing the trend-lines, so there is still cushion before real damage is done:

Scary Nasdaq 2

You remember this chart…Below -8% and the Market Indexes can land anywhere, but there is a 71% chance to find support above it:

 

Scary Nasdaq 3

This next chart shows that the # of New Lows fired recently to fulfill the Hindenburg Omen requirements of 2.2% Highs and Lows:

Scary NYSE

The Internals are awful with A+B now less than D+E by a factor of 2:1:

Scary AccDis

Worse yet, the “E’s” are swamping the “A’s”, and it will take a strong comeback by the Bulls to right this ship:

Scary As

The Spreadsheet shows that the Market Indexes are now down -5.6% on Average from their Highs:

Scary ss

The Bounce Play has been miniscule so far, so we see what transpires this coming week:

Scary ss 2

As expected, we got the “Fakey” I warned you about, and now we are back in the doldrums:

Scary Pat

…And last but not least, a (9) shows weakness and it will be a while to gain support to the upside again:

Scary Pat 2

Good luck and Keep your Powder Dry!

Ian.

2 Responses to “Stock Market: Scary Ride to Come or Up, Up and Away?”

  1. Paul R Says:

    Ah Ian, you snuck a great Sunday afternoon blog! Question, with this shallow a correction should we expect 2 more fakeys before we see the days of wine and roses again?

    Paul R

  2. ian Says:

    Thanks Paul:

    1. With a Small Correction of <8% in the EARLY stages of a Rally after a bigger correction one should expect the potential for a "V" bottom and maybe only one Fakey.

    2. However when the Rally is long in the tooth like this one, the first correction and Rally attempt ends in a Fakey which we just had, but the expectation is that there will be more to the downside, and this implies that any rally attempt will be met with resistance, especially as there is a huge gap to overcome at the top side. The expectation is that the Bears will try to hammer the Bulls as they too were hammered for over a month prior to gaining control.

    3. A "V" bottom is most unlikely, and the expectation is a Head and Shoulders formation with the usual 3 Fakey Scenario and a 3 to 4 month pause to refresh which would take us into October before we start the festive season rallies.

    4. The question is "What is normal these days?" The Markets are always news driven, but this time they can't wait for any tidbit out of the Fed especially, and right now there are two:

    a. The "tapering" mumbo jumbo that Q-E 3 is coming to an end soon, and

    b. The tom-toms are beating on whether Bernanke will bow out at the end of this term.

    5. The chart on A-E has my attention right now, and the deterioration must reverse quickly for me to lean more heavily to bullish rather than bearish. The support/resistance mumbo jumbo (good stuff), suggests that there is bags of support at -8% down around 3250, but if things get ugly then it is downwards to break the 200-dma for at least a -12% correction.

    6. The other way to look at it is that we have had three major shots across the bow by way of the 5 or more Buckets down stuff, and with the Base Low at November 19th, 2012, all of seven months with only a 5% correction, it seems time for a decent clean out this time.

    Net-net, you are right to realize that the next rally attempt with the Potential of another Fakey is probably a better bet than hurdling on upwards! The last one caved in with the Bulls at Bucket 0.6 to 0.7, which says the Bulls didn't have any muscle last time, and are in deeper yogurt this time!

    Net-net, play with caution, and keep your powder dry. Short term players enjoy the fun.

    Ian.

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