Joined Oct 26, 2011
153 Blog Posts

Market Outlook

Let’s start with the transports which are the greatest sign for concern for the general markets.
transports warning

You can see a failure to make new highs, a breach of prior lows, and a breach of the long term trend channel. However, in order for markets to be confirmed bear market, you need ALL major markets to show the same thing.
So let’s look at the S&P


If you were to draw a single trendline from the lowest low to the most recent low, you certainly have a trendline breach. However, the trend channel appears to be intact, and because the most recent low didn’t close the week below prior low, it remains unconfirmed by some definitions. However, the weekly close of week ending 1/16/16 was a lower weekly close than the prior weekly low (on closing basis), we have a lower weekly close than the 1/16 close, so it’s definitely leaning towards confirmed breach of recent lows. Nevertheless, the oversold conditions near a long term trend channel support is certainly a historically a good location to be a buyer, not a seller.

Let’s look at the dow.


The long term broadening pattern formed resistance that temporarily was broken to the upside but failed to stay above. As we zoom in we can see that the long term trend channel has been breached. The rest is a little confusing once again because the daily/intraday shows a higher lows, but on a weekly closing basis we have the current recent low lower than the last 2 and a pattern of lower lows and lower highs on a weekly closing basis.

Finally, I saved the most fun chart for last, the nasdaq.
nasdaqWe can see that the all time high of 5132.52 acted as resistance, even though we surpassed these highs briefly. Also interesting is that the next high following the 2000 top is acting as support. The recent low is above the October 2014 closing lows, but below the August-September 2015 closing low despite being above the open of August 24.

In conclusion, there isn’t a clear, decisive bear market underway just yet. There is some evidence for a range bound market, some evidence for a short term bounce, and some evidence that an intermediate term, or even long term correction may be in development (unconfirmed).

However, the signs suggest considering caution into strength moving forward. There certainly is evidence pointing towards a short term correction if you are judging off of the weekly closes of the lows. The fact that ALL markets are showing a lower low on a weekly closing basis than the low made in the August-September 2015 time range is significant enough to create cause for concern and a minimum of lighter position sizes and/or number of positions moving forwards. This concern is increased by the fact that the July 2015 high has not been breached, but in the current position (short term) are somewhat mitigated by the location of stocks still in an oversold condition near long term trend channel support.

If you were to draw a single trendline from the 2009 low to the most recent significant low, all markets show a breach. You would thus consider selling the next bounce or the retest of this breached trendline in a 1-2-3 trend change. The retest would probably correspond to up to a 3-5% rise in the dow.

If you enjoy the content at iBankCoin, please follow us on Twitter

One comment

  1. Option Addict

    Good piece. There’s a lot of back and forth about the Dow Theory sell signal, and how it doesn’t totally qualify just yet. Living on the edge.

    • 0
    • 0
    • 0 Deem this to be "Fake News"