Dead cat bounce

We have a clear bear market signal across a wide range of indexes and current behavior is typical of the early “Denial” stage. If we look at 2008, the Dow broke primary support at 12800 in January, falling sharply before encountering strong buying support at 12000, signaled by weekly volume over 1.5 billion [1]. The rally failed, but buyers again snapped up bargains, with weekly volumes [2] above 1.5 billion. A third rally even penetrated resistance, but buyers soon lost interest and the next down-swing [3] led to a strong bear market over the next year.

Current buying support, with weekly volume close to 2 billion [4] is typical of the first stage of a bear market . Expect a rally to test 12000 followed by another test of  support between 10600 and 10800.

Dow Jones Industrial Average

* Target calculation: 10800 – (11800 – 10800 ) = 9800

Friday’s doji candlestick on the S&P 500 Index indicates hesitancy, and 21-Day Twiggs Money Flow below zero warns of selling pressure. Breakout above 1200 would indicate a similar rally to test 1260, but reversal below 1100 would signal another down-swing.

S&P500 Index

* Target calculation: 1125 – ( 1250 – 1125 ) = 1000

The Nasdaq 100 Index displays stronger buying support, as evidenced by the long tail and small bullish divergence on the weekly chart. Expect penetration of resistance at 2200, but the primary trend remains downward and reversal below 2200 would confirm.

Nasdaq 100 Index

* Target calculation: 2200 – ( 2400 – 2200 ) = 2000

For those who follow classic Dow Theory, the Transport Index broke below 5000, confirming the bear market. 63-Day Momentum further strengthened the signal with a strong fall below zero.

Dow Jones Transport Average

* Target calculation: 5000 – ( 5600 – 5000 ) = 4400

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