Is There A Bear Market in Progress?

By: Chris Vermeulen | Wed, May 25, 2016
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The SPX topped out one year ago, on May 20th, 2015 at 2134.72. One year has gone by in the SPX and has still not made a new high. It could be many years before we breach that high!

The SPX chart below indicates why it is not making any new highs and why a trend change is due any day, now!

From the lows of 2009, the SPX has risen in a parallel channel while never breaking/closing below it with the exception of the beginning of this year at which time it broke down the channel and then closed below it. However, it has since recovered, as indicated in the chart below, however, it is facing significant overhead resistance in the 2110 levels.

There is a lower high formation during all of the pullbacks, after the corrections, as can be viewed, in the chart below.

Whenever a long trending channel is broken, it weakens and the odds of a breakdown increases. The next move is the break of the channel which will change the uptrend into a downtrend.

S&P500 Weekly Chart
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Allow me to analyze what the targets of the long-term break of the uptrend are.

The pattern breakdown becomes confirmed below the 1810 levels. The break will form a pattern target of 1490 on the SPX. The targets usually overshoot in a bearish market, therefore,1490 is merely a ballpark figure that the markets can go much lower while falling.

Along with breakdown of the channel, the SPX is also making a long-term bearish rounding pattern as indicated, in the chart below.

S&P500 Daily Chart
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The long-term chart patterns are negative, however, unless the shorter time- frame also becomes negative, a buy or a sell signal is not triggered.

Let's see what the short-term time frame chart patterns are suggesting!

The short-term pattern shows a classic 'textbook' example of a bearish head and shoulder pattern as depicted in the next chart below.

The pattern will be confirmed when the SPX breaks and closes below the neckline at 2040.

Below the 2040 level, the next support level comes in at the psychological 2000 level. Most traders who have been buying the dips will buy close to this level, and I expect to see a bounce.

The professional traders will use any bounce off these levels to short the market, to take advantage of it's long awaited downtrend.

The bearish head and shoulder pattern target, on the lower end is located at the 1970 levels. However, these targets are only a rough levels for reference. The markets can easily overshoot these levels.

S&P500 Daily Chart 2
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On the shorter time frame, there are various levels which can offer support during the next major decline.

As explained above, the 2000 level is a 'psychological support area' and 1970 is the pattern target. However, upon studying the charts, I can see that 1950 levels, which had earlier acted as a resistance, will now offer support.

If the markets break below the 1950 levels, then there is no support until it drops to the lows of 1810. Once the SPX breaks below the 1810 levels, it will enter into its' multi-year bearish trend decline. The markets do not honor any support levels once it enters a confirmed bearish trend! Hence, although 1490 is the target, markets can go much lower as long as the bearish trend continues.

S&P500 Daily Chart 3
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I have provided all of the important levels which you should watch out for.

However, no pattern plays out exactly the way we expect it should, hence, it is important that you keep watching my daily morning video forecasts, as I will keep updating new breaking market trade set-ups, to subscribers.

This way you will see the latest changes on the charts and the accompanying action to be taken. Continue watching and be prepared to engage in this market, at the right time via my ETF trade alerts.

My cutting edge analysis will reveal all of the new twists and turns in all of the markets in which all of the big investment houses trade.

 


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Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
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Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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