This past week we bottomed at 1810 on the SP 500 index, which was at the high end of our SRP forecast for a 5th wave low between 1782-1810. We immediately rallied off that low with Jamie Dimon from JP Morgan buying 25 million worth of stock in the open market, and OPEC chatter about cutting production producing a 12% one day rally in Oil to end the week.
The question we pose really then is “A Bounce and Then?” Just like last weekend when we thought the market would fall back and test the lows or lower after the rally we saw, everyone wants to know what next?
Our views are a bit mixed, but we will first summarize some bottoming indicators to give the Bulls a nod, and then give your our official best projection using the NYSE Index as our guide and of course our crack Elliott Wave methodology being employed to help out. We also show you the more broader “Global Dow” chart which is ugly.
Initially of interest is we saw the 1947 rally recent highs followed by a very clear “Impulsive” 5 wave decline to 1810. Normally that means you’re nearing the end of a wave pattern and terminating that trajectory whether it be up or down. In a Bear market, rallies are quick and over relatively fast and form some type of A B C Counter-trend pattern.
So looking at the SP 500 Index alone, we are projecting a rally to 1882 and possibly 1925 area for this wave 4 or wave 2 bounce. This SP 500 count shows a “Wave 4” upwards, which will peter out max at 1925 if we are right. This would then head south to new lows, finally breaking that 1810 support.
Now to give Bulls a bit more hope, we can make an argument that the rally could be of higher degree, taking the SP 500 to 1997 area from 1810 lows. Below are a few charts showing you why that may be the case due to Advisors being super bearish and the NYSE Short Interest declining.
Note how the NYSE Short Interest ratio was near 5 year highs back in July of 2015, and now its at 7 month plus lows. Indicates people have been covering their short bets of late for sure. We also again note that the % of Advisors being Bearish is historically very high.
These two indicators give the Bulls some hope because the the 1810 SP 500 level, we retraced a 31% Fibonacci ratio of the 2011 lows to 2015 highs rally (1074-2134). This could be therefore an “A” interim bottom of the Bear with a nice B wave rally heading to that 1997 area on the Index. That is the Bullish case.
We will also throw in the fact that the NASI Oscillator is at lows not seen since the 2011 lows, another indicator of a market that is washed out. Those above factors give some credence to an Interim A being bottomed at 1810 for this Bear, with an Interim B wave underway, slim… but possible. We will tell you what Bogeys to watch for clues below.
Now for the more Bearish scenario:
The NYSE and Global Dow charts are a bit more clear to us in terms of the Elliott Wave Patterns. This shows potential for this upward bounce to only have about another 3% left in the tank, taking the NYSE to about 9500 from the 9229 close on Friday. As it turns out, that equates to about 1925 on the SP 500, our other target we mentioned. Below is our NYSE chart which if accurate is a bit more bearish.
So what to do? We would watch 1925 on the SP 500 index for massive resistance and 9500 on the NYSE for the same. If the markets are able to close nicely over those levels then we could see a rally to 1997 on the SP 500 as a “B” wave Bear market rally, and 9900 ish area on the NYSE.
Our gut says that the NYSE does not get past 9500 and the SP 500 not only struggles at 1882 area but will not likely get past 1925 either. So that is our official view, and the markets will soon tell us if we are right or wrong.
Global Dow is a clear impulsive wave structure heading south. We appear to be in Wave 3 targeting 1750 area, another 15% down.
This past week we continued to see Gold and Gold/Silver stocks outperforming.
Gold as it were, has rallied from 1050 US to $1270 in the last many weeks as the US Dollar rolled over hard and demand for precious metals picked up across the board. The RSI level though for Gold right now is at levels not seen since 1999, clearly a pullback is due. That said, we can see why there is real demand for the precious metals as protection against the Global Banking credit risk issues and bond credit risk. Should be time for some consolidation here
Utilities, Food, Gold, Silver… the usual boring stuff is leading during this Bear cycle as we have pointed out over the last several weekend reports as likely. Bulls will want to see a continuation of the Financial Sector-Banks rally we saw Friday, and Oil uptrending off the lows this past week.
In any event, at SRP we will use our tactical swing trading coupled with our forecasting models to generate Alpha in any environment. We continue to maintain high cash balances, incorporate 3x ETF trading, and selected stocks here and there. We recently played SEDG for example for nice 12% gains but took profits before the reversal and decline. We are currently long another defensive stock which rose 7% on Friday as well and we are up on nicely now even with the Bear decline recently.
Bottom Line? We believe the Bear has more room on the downside, but short term there are some oversold readings and contrarian indicators that favor a continuing rally. 9500 on the NYSE and 1925 on the SP 500 should act as strong resistance from Fridays closes at 1865 and 9229. If the market can close over 9500 and 1925 then we can see 9900 and 1997 ranges before this rally peaks out.
The likelihood though is the Bear will return with a vengeance again after this bounce and take the NYSE to that 8300-8400 area and the SP 500 to the 1710-1704 areas initially. The market will of course be the final arbiter, we are just merely players. We keep an open mind to changing our views and our tactical strategies at all times. Its never wise to be a Perma-Bull or Perma-Bear. However, a 6 year plus Bull cycle doesnt usually end in just 7 months or so… keep your eyes an ears open to the winds of change.