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This is a very timely point to remind ourselves that when the market broke
down and plunged a few weeks ago, it did so from a parabolic blowoff top, or
as we had defined it, a 4-arc Fan Ascent, which amounts to the same thing for
practical purposes, a top that was accompanied by all oscillators and
indicators being at record overbought extremes. While this top may not look
all that extreme compared to something like Bitcoin, we should keep in mind
that the broad US stockmarket is infinitely greater in magnitude than
something like Bitcoin, and therefore vast amounts of capital are required to
create any kind of parabolic blowoff. Given that there was a long
lead in to this parabolic blowoff it means that the stockmarket is done –
finished – and the bell has been rung on a new bearmarket.
Apparently the reason that the market got a bit of a boost
yesterday was that there was talk going around that the Fed “realized the
error of its ways”, and would backtrack on QT (Quantitative Tightening) and
resume QE and happy days would be here again. There’s only one problem with
that argument, and it’s a big one, which is that if they try to resume that
course in the face of gargantuan and fast rising deficits, they will crash
the dollar and send rates through the roof, causing the economy to implode
anyway. So, to use a rather hackneyed old expression, they are caught between
a rock and hard place, they can no longer have their cake and eat it, and its
payback time as all their financial crimes of extreme profligacy for years on
end finally catch up with them, and unfortunately, the rest of us. It’s a
good time for them to start a war or wars, in addition to the ones they have
started already, and blame it all on that, maybe that’s what all this
ludicrous Russiagate nonsense is about, they are organizing a scapegoat.
Going back to QE just won’t work and that means the jig is up on this
bullmarket, which of course is what we would expect after a parabolic blowoff
top. So how is the market looking now on the charts? You may recall that we called the top of the
market within a week, and then the bottom of the plunge
right after it occurred, when we closed out all Puts. A few days back we called the top for this
rebound and put money on it, buying a range of leveraged inverse ETFs,
but thanks to yesterday’s rather sharp rally, folks may be wondering if that
call is wrong – is it? Let’s now examine the latest 1-year chart for the
S&P500 index to see how things look. The 1-year chart is very useful as
it enables us to put the rebound of the past couple of weeks in the context
of the 4-arc Fan Ascent into the bullmarket peak and the plunge that
followed. Given that, as we have noted above, parabolic blowoff tops coming
at the end of a long bullmarket are just that, tops, and are not corrections
or consolidations as the government and Wall St are trying to make out, it
means that this rebound is nothing more than a bearmarket rally to correct a
deeply oversold condition, that should not make it back to the highs. This
rebound was in order and we expected it, because the market had plunged into
a still steeply rising 200-day moving average, which meant that the rebound
would be sizable, and it has been. Since the top is in and a bearmarket has
started, the maximum rebound to be expected was just under two-thirds of the
preceding drop, or Fibonacci 61.8% to be precise, which is why we shorted it
by buying bear ETFs last week when it recouped this percentage, since which
time the market has risen marginally above this target level as can be seen
on the chart, but interestingly yesterday’s rally did not succeed on closing
above the intraday high of the previous Friday. Thus the market should turn
lower here or very soon and we are believed to be at a great point to short
it.
 
The 2-month chart shows recent action in much more detail.
On it we can see how at the bottom of the plunge the S&P500 index bounced
almost exactly off its rising 200-day moving average, making a large bullish
hammerlike candlestick. Having reached our target for the bounce the market
started to run into trouble this past week and some bearish looking
candlesticks appeared, but then on Friday it put in a better performance
closing with a larger white candle, but as mentioned above this did not break
above the previous Friday’s intraday high, nor did it break above the
resistance level shown which put a lid on the advance all week, but whether
it does or doesn’t short-term, this is now regarded as a VERY bearish setup,
with renewed decline expected imminently whose 1st objective will be to
retest the plunge lows.
Conclusion: the rally of the past couple of weeks is not a
resumption of the bullmarket, as the government and Wall St would have you
believe (“we just had a normal 10% correction”) – it is a countertrend relief
rally within a bearmarket that promises to be severe, and it is believed to
have run its course. This means that we are at a perfect or near perfect
point to short the market for a downleg that could easily be worse than the
1st one, an ideal time to load up on Bear ETFs and Puts, which is what we did
last week.
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