Sunday, June 26, 2016

A Giant Pump and Dump

As I warned last week, bearish sentiment was strong enough to push the SPX back to the 2120 area, but I had no idea it would occur as early as Thur close (actually 2113, but 2127 after hours) as rumors switched from favoring BREXIT to BREMAIN.  I wish I had the cajones to short over 2100, but I probably would have been stopped out.  What this did is set up the probability for a more bearish outcome by using up a lot of buying power even through the result at SPX 2037 is only 13 pts below the previous low at 2050.  Ideally I would like to see an ABC decline down to the low 1900s (1920/30) as the bullish alt then a rally to ATH by Fall, but I still see a 50/50 chance of a "summer swoon" down to mid 1700s.  The more bullish alt short term would then lead to a long term (2000-02) type bear market.

Looking at the intermediate term composite Indicator Scoreboard, we are now at almost identical sentiment readings and SPX level as in July 2015, but barring an all out "do whatever it takes" from the world's central bankers, similar results at these levels seem unlikely.

From the shorter term perspective, it is difficult to tell whether bearishness has reached a sufficient level to halt the current decline.

Conclusion.  Due to the sharp rally thru Thurs, I am lowering my expectations for a meaningful low from the low SPX 2000s to the low 1900s for about a 10% decline.  This could very well happen by early July as there is a meaningful Bradley turn date July 5.  Hopefully, sentiment will paint a clearer picture by that time.  An ABC decline into the low 1900s could very well turn into a 5-wave decline into the 1800s without sufficient bearishness.

Weekly trade alert.  At this point a break of the SPX 200 SMA at 2021 on Monday seems to be a given with follow thru below 2000 highly likely.  Using the scenario for a 10% decline, a possible range for A down is 1980/90, so buy the SPX at 1985 with a stop at 1970, and a target of 2040/50 for a 50% retrace.  At that point short at 2045 with a stop at 2060, and a target of 1920/30.  Trade updates @mrktsignals.

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