To me in order to win this fight, the bears still have a lot of work to do. So wanted to take a look at the current price action, and review a few scenarios so we are prepared and not blinded by what we want to see. I have no idea what will happen, but like to keep an open mind, so I have a Plan.
Personally, I feel like sentiment is just too weak for a major correction to occur. Breadth readings are on their lows. I feel like, yes, we make a lower low, test October 2014 lows, but then we rally.
For the bears to keep winning, the first step wold be to take out yesterday’s lows at 1908.92 on the SPX, because after breaking trend, this morning we are testing the swing highs.
It looks as if the bears will be able to hold that level at the moment, which sets up the possibility for a couple of days of consolidation and then an inverse H&S breakout that would have a price target of 1990.60, with a gap at 1990.27. Really not out of the realm of possibilities right? Doing that would still be a lower high on the larger time frame, so could still leave the bears in a place to drive this mkt lower, but would really squeeze the shit out a ton of bears, get the bullish sentiment up to a level of FOMO buying and then the rug pull.
Scenario 2. (try not to get to confused by the drawings).
We roll over from here (or fill the 1967 gap then roll over)
take out the 1908.92 and take out 1903 (prior swing low) targeting that 1868.14 gap, set a lower low and boom away we go and bull mkt continues. That is what happened in 2011 (my post here)
Scenario 3 is the most bearish. Anything can happen in the shorter term, maybe scenario 1, and after we hit 1990, we roll over, take out 1865, retest it and then continue to correct. I think many believe this is going to happen, I have no idea, but it’s on my radar.
Scenario 4) At some point we rally, retest 12 Month Moving Average and then full correction in 2016.
Maybe scenario 2 occurs, we a make a lower low here, we rally into year and and retest the 12 Month moving average (FOMO kicks in, sentiment gets back up to 80 or 90% bullish and then GOODNIGHT MARKET!)
Regarding the 12 Month MA if you look back on this monthly Chart, it typically rolls over (currently flat) get’s retested and then the market pukes. See below.