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Market Outlook: Down then Up?

SHORT-TERM: COULD SEE SHARP PULLBACK THE NEXT WEEK, SUCH A PULLBACK MOST LIKELY IS BUY

First of all, take a time to vote our new poll, maybe you have a 3rd thought now? It's interesting to see how sentiment shifts as the market unfolds, if you compare the poll 1 with the poll 2. Let's see if the market has now convinced most of us.

Three cents:

  1. Expect a sharp pullback as early as the next Monday, no later than Thursday. My guess is Tuesday because Tuesday is famous for "turnaround Tuesday". Such a pullback more likely is short-term in nature.
  2. A little bit bigger picture, after the pullback, we should see multiple weeks rally.
  3. The big picture, after multiple weeks rally, SPX would down to around 1,000 at least.

The chart below shows the road map as mentioned above. It basically reiterated the Route A mentioned in the 10/07 Market Outlook, that we'll see a sharp pullback the next week, but such a pullback most likely is buy. Some people asked me about the final rebound target, my answer has been, I need see a chart pattern. The chart below also explained my answer, I need a pullback before applying the Measured Move to know the final target.

3 Push Down
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OK, now let me try to talk you into believing why we'd see a sharp pullback the next week.

NYMO is way too high. This is the major reason that I believe we'd see a sharp pullback the next week. The signal had no exception in the past.

NYMO High
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I want to remind you how important the position the market is at now where bears have multiple defences:

  1. The price is testing perhaps the most important weekly MA.
  2. Fib 61.8% and Fib 50% confluences area.
  3. It's been the major battle field between bulls and bears for the past 14 years.

Without taking even a tiny little breath, bulls travelled so long to challenge such an important point, with NYMO extremely overbought, so really, it needs lots of imagination to believe bulls can easily take out the resistances without any fights. More likely, in this case, a breakout, even if indeed, would be a head fake.

SPX Weekly MA
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The chart below also argues that bulls have exhausted all the forces (before such an important challenge), as MACD Hist is way too high now. Let's allow 3 more days up for it to reach 10 years high which means the price could be up to Wednesday and this is why I said no later than Thursday, we'll see pullbacks.

MACD Hist High
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The two charts below are arguing for a pullback no later than Tuesday. They both went wrong twice in a row recently, so maybe nobody believe them anymore. But it was in the 7 Days Rule period, during which time, nothing bearish ever worked. Now the bulls best 7 days have passed, the question is: Will those bearish signals start working again? And will the 3rd time be the charm? After all, both had over 70% winning rate in the past.

Up Huge
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ISEE High
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The last chart does not count as evidence for the coming pullback because the sample size is too small. I just want you to know that VIX down 9 consecutive days only happened 3 times in the past 10 years with no single case that it dropped 10 consecutive days.

VIX Down 9 Days
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INTERMEDIATE-TERM: WE COULD SEE MULTIPLE WEEKS RALLY BUT MAINTAIN SPX DOWNSIDE TARGET AT 1,000

For the intermediate-term, I believe we'd see multiple weeks rally, but eventually SPX would drop to around 1,000 at least. For why SPX would eventually drop to around 1,000, I only have some very subtle evidences, so I'd prefer to blah blah later when I have more evidences. For now, it's enough to know that more likely we'd see multiple weeks rally.

The chart below is the major reason why I think we'd see multiple weeks rally:

  1. Selling Climax itself had 63% chances led to a rally that could last more than 2 weeks.
  2. What we have now is the 2nd Selling Climax therefore much better chances of more than 2 weeks rally. This, by the way, conforms my favourite 3 push down pattern.
  3. Even in the worst case that the rally was over this Friday, from what happened in the past (red cycles), looks like at least the Friday's high would be revisited several times, so bulls should have enough time to escape unharmed.

Selling Climax
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For why SPX downside target at 1,000, please see 08/19 Market Outlook and 09/30 Market Outlook for details.

SEASONALITY: BULLISH MONDAY, BEARISH FRIDAY

According to Stock Trader's Almanac:

  1. Monday before October expiration, Dow up 25 of 30.
  2. October expiration day, Dow down 5 straight and 6 of last 7.

See 09/30 Market Outlook for October day to day seasonality chart.

SUMMARY OF SIGNALS:

  TREND MOMENTUM COMMENT
Long-term 3 of 3 SELL    
Intermediate 3 of 5 BUY 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in BUY mode.
Short-term UP 5 of 6 NEUTRAL  
* = New update.

 

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