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Waiting On The Fed...What The Market Likely Wants....Weeklies Unwind...Big Picture Outlook...

The market seems to have found some stability after the bug push lower that saw the market flash crash one day and even though it recovered some, saw some real technical damage once the heavy selling episode was over. We moved from one long term base in to a new base that's actually larger than the one that saw us go nowhere for eight months. Scary to think about how long we can go basically nowhere should this play out the same way. We can hope that won't be the case but sometimes we see markets do things that seem impossible but behind that seemingly impossible event is a real plan. The plan to rid the monthly charts of their very poor technical's that still exist. The market did a great job over the past few months of removing froth completely from the equation. At a minus -2.2 reading we see froth has totally gone away. No one can say we're optimistic any longer. It took only a few months to turn extreme froth in to extreme fear and make no mistake about it, we are experiencing extreme fear. Extreme levels of fear can stop a market from falling further and has ended many corrections over the years. That has to be given some merit. While things look bad we do have fear moving high quite quickly so it is possible we have seen the lows for a while. No guarantee whatsoever but minus -2.2 is unusual. We had a minus -20 reading years ago but that was when the banking system was melting down. We're nowhere near that type of situation here. So to sum it up. Fear is at extremes which is bullish. Monthly charts are terrible which is bearish. Fundamentals are deteriorating which is bearish but rates are extremely bullish. Quite the tug of war but for now we are probably in a calmer period short term until the fed. More on that coming up. All of this equates to a market trading mindlessly in a lateral range. No fun. Sometimes reality really isn't much fun.

Wilshire 5000 Composite Index Weekly Chart

The fed is out next week and it seems to me everyone knows they'll be hesitant to raise rates but my thinking is the market wants clarity. It would probably be bullish if they'd raise rates and tell everyone they'll only raise rates based on fundamentals and even then the process would be very slow. If the market can get this unknown out of the way and recognize that it's nothing from nothing which I believe it ultimately would I think the market would sell for a couple of minutes and then move higher to some degree. Again, rid the uncertainty. Let everyone know it won't be a full rate hike cycle and all would be well. The fed I believe needs to get the dirty deed done. I actually believe the market will like it better if they do than if they don't. I really have no clue what they'll do but that's what I'm thinking. Get it out there. Put it to bed and let the market deal with it. The wording is key and can be done without hurting the market.

When bull markets end the process can be a very long one. Thus far we have not seen any big money distributing off recent tops. That's important. It doesn't have to have distribution to end a bull market but more often than not it does. Also when bull markets end we usually have many tests back up to the old highs and sometimes you can even temporarily make new highs. Bull markets just don't end in a straight line down such as we've seen so it's quite possible we will see an attempt back up to around the old highs at some point in the near future even if that takes some months to occur. Here's the big picture problem. The daily weekly and monthly charts would all have negative divergences on any new highs. The daily one would be significant but the weekly and monthly ones would be gargantuan in nature. When all time frames combine for negative divergences at new highs it's pretty much the kiss of death for equities. The biggest headache being the size of those nasty divergences that would form. Just huge. So while it's possible if not likely we'll make many tests up over time the bull market is likely on its very last leg. We can hope to see 2200 or so and that's definitely no guarantee, but much beyond that will be difficult and once those divergences kick in that would probably be the end of the bull market. It's my belief that most of the good times from this long running bull are over. We can hope for a few more tests back up ad we should get some but expecting this to go on and on is quite unlikely. Not impossible but definitely unlikely. We shall see what the market offers up but I feel the end is nearing and things probably won't be too much fun for some time to come. Again let's hope for some decent upside first.

S&P500 Weekly Chart

The current range runs from 1867 to 1993. 126 points which is more than annoying but let's go over those weekly charts. You can see that they have unwound quite a bit and we've featured those this weekend. The monthly's are slower but at least those weekly charts are rocking down on their oscillators. This reality plus fear tells me we should eventually try higher as I've just spoken about. That doesn't mean right away but sooner than later. I'm thinking 1867 should hold but we'll see. If we can eventually clear 1993 we should try a full back test of the breakdown at 2040. That would coincide again with testing the top etc. Good to see how far those weekly charts have unwound so hopefully the combination of those index charts plus fear will give us at some point soon the next move higher this we did position in some mild exposure this week after exiting up near the 2,040 area last month. If 1867 goes away something more bearish is taking place but we'll deal with that if it occurs before 1993 gets taken out. One day at a time in a very difficult environment. Lots of cash is best. Do what feels right to you of course.

 


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