This post by Daneric40 has been promoted from StockTock Social.

My outlook is based on the 870 SPX support line and/or a break above the 916 Friday high. If the 870 breaks, the market is confirmed on the next leg down which would be 5 of 3. If 870 holds, the market may try to trace out a “B” position consolidation triangle in an attempt to move the markets higher and then failure soon after.

My prediction? Until 870 breaks, a prediction for an immediate move lower would be perhaps premature. However with that said I am still leaning bearish. Five main reasons:

1. The charts are broken. Lots of them. Starting with the SPX.
2. The giant “triangle” particularly on the DOW and/or SPX has appeared to be all played out. There is only one direction left if this is the case and that is down. It can be noted that the NASDAQ is actually just a sliding mess and not really a triangle.
3. The economic fundamentals are absolutely horrible and the realization that things will be very bad has started to set in. All the stories of hope have come and gone so many times now in the past month, yet the markets slink lower still.
4. The leading bear sector, financials, have broken key support and have failed twice to regain. They are in no man’s land trading in 1990’s prices.
5. Investors have turned bullish and complacent. Coping with wild swings is starting feel “normal” and even though the VIX continues to hold 60 or above support, investors are continuing to cope. In addition, bullishness has returned in the last week or so. This is due to the markets seemingly bouncing along an “impenetrable” bottom in a “bottoming process” that continues to get trumpeted by the talking heads. I am of course opining here. Yet one requirement for the next market downleg is complacency and bullishness. The evidence is there that these are now again in place in sufficient amounts.

COMMENTARY:
The markets have deemed 870 as an important support line. Perhaps that is to keep a cushion above the 840 level from breaking the 840 lows into no man’s land below. The DOW 8500 mark is the equivalent to 870 area. Perhaps both have taken a “line in the sand” defense for the bulls. Lower still DOW 8000 is a rock solid support level, however severe SPX financial weakness can indeed cause the DOW to selloff. Tech is no help for the DOW either.

The DOW is trying to be the market leader for the last few weeks. It has shown some strength.

The extreme doubletop created on Friday is very very bearish. It closed right on support. In my opinion, the only way for the bulls to save this last upleg is to save 870 at all cost which seems to be the plan. The only way they could do that is by tracing out some kind of consolidation pattern such as a triangle in the “B” position. So Monday has to be a gap up or a move higher immediately for the bulls or the triangle consolidation play is in jeopardy.

The move up from 818 appears to be (so far) an ABC pattern and the “C” leg did not extend very far at all. It is unsatisfying as a wave pattern. Perhaps the saving bull triangle will play out between 870 and 910 area. However if 870 breaks, the doubletop will be confirmed and markets are on their way lower.

Financials are broken.

Tech just keeps quietly making new lows all along.

No sense in making any further commentary until Monday happens.

My trading plan is to enter a short position at the best opportunity upon a market pop up. The reason is this: If the markets DO trace out a saving triangle in the B position of this ABC move up from 818, then it shouldn’t be too scary a hold (yeah right!). I just do not see a power move up reversing that doubletop and breaking to the upside without some volatile consolidation moves first. So the only bull “save” play is a consolidation triangle somewhere between 870 and 910 and if this indeed happens, it should give me time to exit the short position with profit or at cost if the tape is appearing bullish.

But mainly I want to be in position to profit from any major downleg lower.

If futures open down red below 870, I’ll look for a fade gap back up on a retrace corrective move from Friday’s 916 peak to enter a short. I’ll be looking for the 50% retrace level wherever that would be.