SPX touched a low of 1291.98 on Friday. This overlaps with the October 2011 high of 1292.66.
- Just below us is the crucial Dec 2011 high at 1267.07. Breaking below this has major structural implications.
- IF SPX trades below 1267.07, I will be forced to mark the advance from the Dec 2011 low as (a)-(b)-1-2-3-4-C (see chart below); instead of current (1)-(2)-1-2-3-4-(3)-(a)-(b)-(4)-(5) count (not shown)
It is NOT A GIVEN that we will get down to 1267.07. Reasons this may not happen are:
- There is EXTREME bearishness, while the market is down only 9% from recent highs
- This is more likely the sign of a short-term PANIC, than the beginning of a bear market
- We dropped to 6% bulls on the Daily Sentiment Index for SPX on Friday. This is close to the 4% level we have seen for previous panic lows.
- Daily RSI is deeply oversold - LOWER than Mar 2009; and almost as low as Oct 2008
- Channel support from March 2009
BOTTOM LINE
- Dropping only 28 points from here will change the MEDIUM-TERM structure of the market. Stay alert for the possibility that we dip below 1267.07 before the upcoming oversold rally.
- Yes, the market may crash but NO ONE can tell you that BEFORE it happens. I wouldn't stay short a market with only 6% bulls and a deeply oversold Daily RSI
NEW SPX count IF we trade BELOW 1267.07 (MEDIUM TERM)
NEW SPX count IF we trade BELOW 1267.07 (SHORT TERM alternate)
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