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How Bearish Should We Get?

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While lower prices appear likely, the bigger question is: How much lower?

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Below is a chart of SPX showing potential support/resistance zones and trend channels.


Click to enlarge

The bond market looks to be in trouble, which is one sign (of several) that things may be cracking under the surface, and that the wave counts may be more bearish than shown. Again, we'll discuss those options further in the upcoming updates.


Click to enlarge

Now, before we commit to the super-duper end-of-the-world bear view, it pays to be aware that there are several charts which are acting extremely non-committal to the bear case. One such chart is the BKX shown below. Unless BKX breaks down with conviction here, it has left itself three bullish options. One is near-term bullish, the other two are intermediate bullish. The option I'm not showing on this chart is for an ending diagonal, which would briefly break the 59.45 level, then rally back up toward the black "alt: (c)" label. The "standard" bear option is shown in blue.


Click to enlarge

In conclusion, several markets are still poised at inflection points across time frames. The patterns are set up that if things break, they could break in a big way -- in fact there is definite waterfall potential in the charts, which makes this a very dangerous market for bulls. But at the moment, a number of charts haven't actually broken yet, which means it's not a great spot for bears to become complacent. I feel fairly confident there are lower prices coming in the larger scheme of things, and that the T3 target zone will be reached -- it's more a question of whether this is going to turn into a mini-crash and head much lower, or if the market will rally along the way and move down in a more orderly fashion. The next few sessions should help clarify BKX (and some other indices), and give us a better idea of whether we should start thinking long-term bearish or not. Trade safe.

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No positions in stocks mentioned.
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