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Bears Close In on Claiming the Market for the Long-Term


Bulls need a game changer, and are at risk of losing long-term control of the market.

MINYANVILLE ORIGINAL Thursday's decline captured the target of 20 SPX points from the bearish sell trigger outlined on Wednesday (1403 to 1383). In fact, all the bearish sell triggers I've outlined since the 1474 print high have now been captured. The failure of the 1403 level caused significant technical damage to the market, but in this update we're going to examine both the remaining bullish potential and bearish potentials in detail.

The market has reached another inflection point, and further downside from here could spell long-term disaster for bulls. The odds that the market has seen a major trend change at the 1474 high are increasing daily, and the chart below shows why this zone is important.

Most major markets have broken the long-term uptrends from the October 2011 lows, but are now reaching possible support levels concurrently.

Click to enlarge

As promised yesterday, here is the intermediate bullish interpretation that remains standing, shown on the S&P 500 (INDEXSP:.INX) chart below. This would make for one heckuva surprise from bulls here. While this count is still completely viable, I continue to have no intention of front-running this decline except at low-risk, tight stop entries, since the trend is clearly down at the moment (I trade primarily futures, so am rarely subject to huge gaps down as cash traders can be). Front-running is only for the very nimble now, because of the danger of the bear count (shown later), which suggests a nested third wave decline -- which means it can go days without coming up for air.

If SPX can generate an impulsive (five wave) bounce, we can run with this count as a more significant and "safer" potential play. Above 1434, and we can start favoring this count.

Honestly, the charts look horrible for bulls right now, and this count is close to becoming the underdog -- but there are three things which are causing me to continue considering the bullish wave count:

1. The QE-Infinity liquidity injections, which start on November 14.
2. The three-wave rally into the 2012 print high on the Dow Jones Industrials (shown later).
3. Big money sentiment is quite bearish. This is often bullish.

Click to enlarge

The bearish interpretation has been steadily gaining traction, and the rough expectations of the bearish count are charted in detail below. This count should probably be considered as the narrow odds-on favorite at this point in time. There is a nice symmetry to this interpretation.

Click to enlarge

The Dow Jones Industrials (INDEXDJX:.DJI) presents a slightly different option, due to the possibility of a complete five-wave decline. The bull count is shown in rough detail in green.

Click to enlarge

On the long term chart, here's how the options break down right now. The bear count is featured on this chart, but still has work to do to prove itself. Two bullish alternate counts are noted -- the first is at Minor degree, as discussed a couple charts ago. The second bullish alternate is at intermediate degree, and would still be quite bearish well into 2013.

Click to enlarge

In conclusion, the market is approaching a potential inflection point, and bulls need to capitalize on this to keep playing. If bears can push through here, there will be little left for the bulls to cling to, and bears will get one step closer to claiming the market for the long-term. Trade safe.

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No positions in stocks mentioned.
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