Editor's Note: The following analysis was offered this morning via Scott Reamer's technical service. We share the vibe on the 'Ville with educational intents and is not intended as advice. For more information regarding Scott's unique approach, please click here.
Still looking lower on intermediate term basis. The action this week has strongly reinforced the idea that March-April decline has more to go - perhaps much more. On an intermediate term basis the lower targets remain the October/August lows.
It is likely that those prices are where we will have to make some difficult (stay short, cover some exposure) decisions. The short term is open to a few possible paths: we could chop to a new NDX peak while the blue chips stay below their May 5th/9th peaks or the blue chips could even decide to attempt to challenge their recent peaks.
And, of course, prices could bounce meekly today (futures are up a handful of points) before giving way and slicing through the mid April lows. But the longer term message is back to high confidence: at some point in the next handful of sessions, worldwide equity markets are likely to decline meaningfully and seriously. As we said a few weeks back, this next decline has the potential to develop into a 'mini-panic'.
The only thing that would cause us to fully abandon the intermediate term bearish view is a violent thrust up in the next few sessions that has volume, momentum, breadth, ticks, and low volatility as its backing. This scenario is now really the only viable bullish alternative; if it takes place we will want to fully respect it b/c it will mean a trip back to new annual highs in all likelihood.
That said, we don't want to be alarmist: the probabilities are strong that we get a sustained and serious decline from the recent peaks. We think it is good policy however to know what scenario would cause us to be wrong and then force us to abandon the aggressive short bias we have in portfolios.
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