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A Sharp Decline to Come

We wrote during the week-end:

"After Thursday's selloff, the market achieved a small pullback, retesting a key resistance. We believe this move could be a 4th of 1. Then we should have a lower low early next week followed by 3 to 5 days of consolidation. A sharp decline should start (3rd wave) after this consolidation."

At this stage, we are not convinced that 1309 was the low we were waiting for: we believe we can print one marginal low around 1300-1305 before the 2 to 5 days consolidation period (but the short term bottom could already be in). During this period, we should retrace 38.2% to 50% from previous decline.

Looking at our indicators, we can notice that the Sigma Trend Index (STI) is in negative territory (from '4' to '-2').

Sigma table

The Breadth Index is also in negative territory (red line):

Market Breadth

Looking at our short term sentiment index, it is important to notice that the panic level is very low. So, we have a long way to go before reaching panic level (panic: blue line, euphoria: red line)

Euphoria versis Panic Level

Conclusion:

Both the Sigma Trend Index and the Breadth index are in negative territory, this tells us that the downtrend is taking control of the market (once again).

We consider that the market is close to a short term (intermediate) bottom/consolidation phase. Thereafter, we should have a dramatic sell off: 1200 is our first target but the final low could be much lower.

For those of you interested in our intraday move, you can visit our site during the day: we post all our trades in real time. You can also subscribe to our twitter account (@SigmaTradingOsc), it is free and you are updated on our latest view/trades.

Current position:
- short 1.5x std size SPX at 1336.48 (stop loss 1350)
- 1/2 short CAC40 at 3103.72 (stop loss 3140)
- 1/2 short SPX at 1316 (take profit at 1302) (new position)

Have a nice day,

 

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