Mauled by Cyclical Bear?
Any countertrend rally likely to meet resistance.
After witnessing the aftermath of yesterday's political catastrophe, it's important to capture the next potential market support levels. In Crystal Ball, my firm referenced a 10-year chart of the S&P 500 and unequivocally stated:
"It's our humble opinion that the 1,150 to 1,160 area for the S&P 500 is crucial to any kind of bullish stance. It's imperative that the line drawn in the sand holds right here on a closing basis.
If, on a closing basis, the market fails at this level -- for whatever reason and God forbid -- look out below. The next level of support in the S&P 500 is 1,045."
The market's roughly 9% grievous day yesterday, as you well know, broke the 10-year support level discussed and puts the SPX off 30% from the October 11th high, down 25% YTD. The next support to be found goes back 4 years, to September 2004, around 1,045.
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As my firm discussed in Opportunity?, you should be aware of days like yesterday when searching for a bottom. By looking at the secondary contrarian indicators one can plainly see the sheer panic in the markets: "Lemmings" or selling begets selling. The VIX spiked to its highest level since the 2003 market bottom, the put call ratio reached 1.24, the advance/decline line was 1 to 6.5 and the ARMS Index (TRIN) spiked over 9 intra day.
With the weight of evidence put together, along with yesterday's action, my firm will be very cautiously looking for a point of entrance for a short-term rebound in the markets. However, to be absolutely clear, our stance is that we continue to be in a bear market and a countertrend rally is more than likely to be met with resistance at the downward sloping cyclical bear trend.
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