Tuesday, October 17, 2017

Time for a Bull Market Correction

Time for a Bull Market Correction

The last BullBear Market Report concluded that:

a new, secular Bull Market began in November 2012. While
there is still some chance that a bear market (D) wave top
could come in the vicinity of the 2007 highs, evidence is
mounting that the 2011-2012 period was a stealth (E) wave
ending a long term triangle and that recent price breakouts
and changes to the technical character of the market mark
the start of a very long term Major (V) bull market…

My current analysis is that the S&P 500 has reached an
intermediate term top in the context of the early stages of a
impulsive bull market wave. The latest technical development
supporting the bull market thesis is that we have seen the
completion of a rather clear Elliott Wave 5 sequence bullish
impulsive wave with subwaves that also show bullish impulsive
structures and characteristics. On March 15th the market began
a Wave 2 correction of the Wave 1 that started in November
2012. This corrective wave could be expected to last an
additional 3-6 weeks and should retrace about 38.2% of Wave 1.
The market recently completed a B wave rally that carried
slightly beyond the March 15th high resulting in a host of
bearish technical setups that provided an excellent exit
opportunity for long side trades and even a nice shorting
entry for more active swing traders. The current C wave down
will probably complete a larger degree A wave with another B
wave rally likely (possibly back to the recent high) followed
by a larger C wave decline. The subsequent C of 2 bottom
should be one of the best long term entry points in a bull
market that projects to late 2015-early 2016.

While it’s too soon to discard the possibility that SPX has
completed a (D) wave cyclical bull market and will now enter
into the final (E) wave leg of the long term triangle bear
market, I do not think that the technical setup supports that
at this point. The technical conditions attendant at the 2000
and 2007 tops are not present at the moment. It is possible
perhaps that after this current decline the market rallies to
a higher level (1600-1620) making a B wave high with the kinds
of bearish technical divergences on the weekly and monthly
charts that could mark a long term wave (D) top.

technical analysis of S&P 500

It’s interesting to note that when the market was setup
technically for a correction the news catalysts necessary to
spark the move appeared out of nowhere. On March 15th it was
the onset of the Cyrpus crisis and today it was a spate of
negative economic news. In the wake of the weak ADP report
today there’s considerable risk that the jobs picture may show
further erosion in the Challenger and Jobless Claims reports
on Thursday and the Employment Report on Friday. Earnings
season starts very soon and warnings from S&P 500
companies have been surging.

Additionally, it is likely that Cyprus bailout story is not
yet fully written and that there are other shoes yet to soon
drop in the ongoing European debt bubble saga. Overall I
expect the period of this correction to generate slightly more
fear and volatility than the April 2012 correction but not as
much as the April 2010 episode. I’m comfortably short at the
moment and looking forward to a good long term buying
opportunity that should be good for a holding period of a year
or more.


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More on this topic (What's this?)
Bullish Technicals Forming In The Midst Of The Correction
Neutral Sentiment Investors Are More Bearish Than Bullish this Week
Bulls In Charge
The Bulls Take Charge
Read more on Bull market, Chun YU Works at Wikinvest

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