Breadth Summation index is Bearish
The Breadth Summation index (BSI) turned down and became Neutral on August 22nd, then became Bearish when it declined again on August 29th just before the sharp decline the following week. The 2 year cycle low I discussed at length last month showed up a bit late but its effect was severe for those unaware of its coming. Now that the decline we warned about last month has started, we can look at clues below for what might be in store for the month of September, a month well known for being the worst.
The Breadth Summation index is made up of a dozen Breadth and Momentum indicators and is an excellent indication of oversold and overbought conditions.
Nasdaq collapses from 2,350 but is still overbought
The Nasdaq white Tick line is still overbought despite the 150 pts collapse this week, and since it remains at the upper end of a probable triangle, we are likely to see a repeat of the last week of June (see blue vertical lines). The red QQV and blue Put/Call ratio lines are also turning up from levels that can support a much larger decline than we have already seen, and that brings the 2000 level within the probable range for this wave down from August. We can also see a possible Top Formation in the Nasdaq that forecasts a significant break of the January lows as discussed at the end of this newsletter.
Charts courtesy of StockCharts.com
SPX in a possible right shoulder formation
The SPX has formed a Head and Shoulder formation in both the white Tick and blue Highs/Lows ratio lines since the July 15th low suggesting we will at least reach the 1170 area to complete the right hand side of the formation.
New Moon of August 30th turned out to be a high
New Moons are statistically highs and since the market turned down from this one, we could decline into the Full Moon of September 15th, and possibly rebound into end of month and the next New Moon of September 29th.
Recent Holiday week behavior
The market has been making turns near Holiday long weekends lately and this behavior appears to continue with us rallying into this Labor Day weekend and suggesting weakness towards Columbus day on October 13th.
Possible Elliott Wave targets
The SPX may be building a beginning diagonal with each wave getting smaller and likely to complete near 1150 by October and/or November. The alternative count has the SPX beginning a Wave 3 of 3 and that would take us much lower as discussed below.
Alternate Elliott Wave targets
The alternate count is more bearish and has the SPX already in Wave 3 instead of ending Wave 1 in the scenario above. This would imply a move to the 1000 area, which is the bottom gray line of an exact duplicate of the expanding triangle we built from 2000-2003.
Bearish Top Formation
This formation appears to occur frequently near major tops and was used to correctly forecast the July top in Oil as discussed in my July 11th Weekly Update . We can see it at work in many time frames below and this pattern seems to always break the originating low significantly, and that would mean breaking the 2003 lows for the SPX.