Today is highly likely a sucker's rally. Yes, as of 1PM EST, I know we have a potentially huge bullish reversal and my post will be labeled as ill-timed or stubborn by some. One day does not change my viewpoint as expressed below. Let's review the reasons we are heading into a sh** storm whether or not the head-fake rally travels higher or not.
1. Discretionary Spending Top Projection
My custom spending indicator, which is a 4-6 month leading indicator, projected a significant SPX top Nov1-Dec1, 2015 +/-. 80% of the time, this has led to an 8%+ downtrend and typically much more when in a bear market which we likely are. There is still a small chance SPX makes a slight new high, but we are stretching the +/- time window with a viable top already seen at SPX 2116 on Nov 3rd.
I received a new spending signal for a significant SPX bottom Mar1-Apr1,2016 +/-. This all means SPX is likely to break below 2000 in the coming weeks and make another low around March. That March low doesn't necessarily have to be lower than the upcoming Dec/Jan low, but other factors to be discussed make that likely.
2. Cycle Convergence
I recently gave historical stock market data nearly all the way back to our country's founding in 1776 that favors an 80-year cycle, 40-year cycle, 20-year cycle and 5-8 year cycle that all appear to be converging on CY2016 or possibly stretched cycles to CY2017. The multi-generational demographic/spending cycle supports the same thing.
3. Technical Analysis
My DRSI analysis back to CY1831 suggests SPX likely has further to fall to bring yearly RSI14-16 closer to its level in 1974/1932. My S2EW theory about DRSI during wave 2s/4s and the heart of wave 3s suggests that SPX price is unlikely to fall below the 667 pivot from March 2009 unless it is brief-lived with a huge rally into quarter/year-end and that SPX is most likely to reach 1100-1250 with a probable brief spike lower. My Magical 48% Recurrence Analysis, Annual Price Reversal Study, 25% Bear Market Behavior analysis, Bull Market Breakout Retest Study (SPX 1576 in this case), Rate Hike Started in May 2014 references and Exponential Parabola theory all favor doom and gloom to the SPX 1600s at a bare minimum with SPX 1100s highly probable in CY2016.
4. Fundamental Analysis
I previously noted that for 120+ years P/Es have dipped below 10.0 in 9 of 12 decades with the 50s raging bull market, 90s raging bull market and the 2000s. We are living through an unprecedented time period that is NOT normal. The stock market would have to get cut in half if earnings were to stay the same. We all know earnings will fall if the stock market gets cut in half, so a Magical 48% drop will likely only end the first major stage of the bear market with price going much lower than that and/or time building a bottom into CY2020-2021 that will bring P/Es near or below 10.
5. Potential New Indicator
Many of my readers know I have dabbled with many indicators even creating my own custom scoring/trading system on a couple occasions. I am probably not too different than most struggling traders, although I know I spend more time researching and analyzing than most at the risk of analysis paralysis. You have also often seen me reference the Wall Street Journal data for Buying on Weakness and Selling on Strength particularly for SPY. I have always conjectured that BOW days usually lead to a bullish price bias for 2-3 days with any dips limited or quickly recovered and vice versa, although it failed on occasion like any indicator and it was somewhat subjective. I decided to try to quantify BOW and SOS data, so I hand-entered data for 6 months to arrive at a potential new turn indicator. I backtested it against Oct/Nov/Dec 2007 with some success, but that whole effort was painful and I'd like to backtest more so let me know if somebody can link me to a spreadsheet of that data.
I can tell you it projected tops on Jun 24, Jul 23, Aug 17, Sep 23, Oct 16 and Oct 30 and bottoms on Jul 10, Aug 10, Sep 9, Oct 1 and Nov 16. Some of those were whipsawed a bit and produced limited profits but some were very very profitable. Only 1 really failed the eye test on the Oct 16 top, but if you were to set a stop at break-even or better once 2 subsequent days have traded in the new turn direction, you'd have avoided this failure and 1 or 2 of the other whipsaws. Obviously, I have to work on trading rules for this indicator and live-testing and back-testing will help that.
Currently, we are still working under a bottom signal from Nov 16th. There is no active top signal, so I was not surprised to see yesterday's drop reversed today although I admit the strength is a little surprising to me. However, the next down day or two that we experience has potential to finally setup a top signal.
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In reference to the title of this post, I am obviously expecting extremely bearish action for SPX into CY2016 and possibly CY2017. The reason it says "starting imminently?" is because we are nearing the end of the potential spending-induced top window (Nov1-Dec1 +/-) portending an 8%+ drop and there is now a potential technical setup for a new short-term downtrend cycle. Yes, there is still a small chance for a brief rally to SPX 2116+ and some sort of triangulation/consolidation into year-end would not be that surprising based on history, but the clock is ticking and I think once my new indicator signals a top combined with a follow-up break of the last major pivot at 2019, we are in for Hell Stage 1 of this bear market whether that occurs in 1 week or 1 month.
By the way, the CY2007 analogy using the SPX 2133/2135 top was projecting the following price action +/- 1%. 2133-->2018-->2103-->1949-->2021-->1905-->2064 to end year 2015. With SPX 2018 and 2103 nearly being bulls-eyed, the next target is 1949ish likely within the next week or two with an open daily/weekly gap at 1951ish. Good fortune.
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