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SPX and RUT: Still a Dangerous Market

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Bears have continued claiming key support levels.

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MINYANVILLE ORIGINAL Last update, I warned that the odds strongly favored lower prices, and the market has obliged. Most markets are now below major support levels and the decline has given little sign of abating. As I've warned for several updates, this is not the type of market to front-run bullishly: This market continues to meet the definition of trying to catch a falling knife. At this point, I'm waiting for price to actually find some type of bottom before considering holding any intermediate long positions.

The chart below shows that most major markets have now broken their primary uptrends, as well as broken secondary support zones:


Click to enlarge

The Russell 2000 (INDEXRUSSELL:RUT) chart emphasizes why the bullish wave counts have now become lower probability. With the key level breaks that have occurred in RUT, it is all but impossible to count the summer rally as an impulse wave -- which suggests that rally will be fully retraced before the market finds a meaningful bottom.


Click to enlarge

Accordingly, for the S&P 500 (INDEXSP:.INX), I'm going to focus on the bearish wave count until the market can find support and give some signs of a turn. All indications are that the market is still within a nested third wave decline -- and third waves are not to be trifled with, except by the nimblest traders. In third wave declines, indicators often reach oversold and stay there, with only minor bounces along the way.
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No positions in stocks mentioned.
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