Time to Revisit Stop-Loss Areas
A break here changes market dynamics, risk-ranking.
In Bear-Market Rally, Not Final Bottom, I discussed technical "quads" (4 momentum indicators pointing to a potential bottom) and how they combined with a technical pattern called a descending triangle. In addition, I pointed out 7 contrarian indicators illustrating an overwhelming negative sentiment - another indication of a potential short-term bottom.
The combination lead to my firm's "Weight of Evidence" probability of success risk/reward calculation showing a decent entry point for a secondary bull-market rally in a continuing cyclical bear market.
Nevertheless, the last 2 sentences stated: "If, for some reason -- such as the Federal Reserve announcement, for example -- this rally were to fail and break the recent bottom, well - look out below. Hence, keep your stops tight and your sell tickets close."
Yesterday's closing action put all 4 sisters right at their lows for the year, tested the prior bottoms, and made this morning's open quite a nail-bitter.
As I closely watch these aforementioned levels, I won't hesitate to pull the ripcord and return to cash, hedged, or even bear positions. For those short-term players looking for a bear market counter-trend rally, I suggest you revisit your stop-loss areas, because a break here changes the market dynamics and the technical risk-ranking.
That being said, if the "4 Sisters" do hold at these levels, we believe the shorts will be forced to cover, and the market should begin the long-awaited bear-market rally.
For a longer-term chart of the next potential support area (760–780) for the S&P 500 please review my firm's last quarterly report.
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