Several weeks ago, when asked what it would take to reverse the bear market, I replied that it would take 3 strong blue candles on the weekly chart followed by a correction — of at least two red candles — that respects the earlier low. We have had three strong blue candles. Now for the correction.
On the S&P 500 expect retracement to test support at 1200 or 1250. Respect of 1250 would signal a strong up-trend, while failure of support at 1200 would warn of another test of primary support at 1100. A trough on 13-week Twiggs Money Flow that respects the zero line would also indicate strong buying pressure.
* Target calculation: 1225 + ( 1225 – 1100 ) = 1350
Dow Jones Industrial Average weekly chart displays a similar picture. Expect retracement to test support at 11500. A peak on 63-day Twiggs Momentum that respects the zero line would be bearish — warning of continuation of the primary down-trend.
* Target calculation: 11500 + ( 11500 – 10500 ) = 12500
The Nasdaq 100 is testing resistance at 2400 — close to the 2011 high. Breakout would signal a primary advance to 2800*, while respect would warn of another test of primary support at 2000. Bullish divergence on 13-week Twiggs Money Flow has warned of a reversal for several weeks.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
So do you believe a repeat of May 2008 S&P 500 action is now unlikely.
Paul, We have to wait to see the strength of the correction. Only if it respects the earlier low will we have a valid up-trend.
Hey Colin,
You are just so incredibly awesome!IThe 3 blue candles followed by last night’s red happened just as you said they would. And right on cue too! I’m in the Far East ~ exactly 12 hours ahead of you guys. I stayed up right until NYSE’s closing bell at 4am shorting the SPY. Thanks to you. Is this the firm confirmation of Bear reign? Where’s the next support level?
Kind regards,
Alexandra Harteam
Thank you. Remember that we need to see at least two red candles on the weekly chart for this to be a valid correction.
How does Indian Market look like in the current scenario ? I’ve been waiting for your comments on Sensex for quite sometime now.
Best Regards
I will update India,Singapore this morning.
Strength of the correction that you talked about is a correction that goes very close to previous low, but not falling through that low point? So let’s assume that it happens, do you then feel confident at that point that it will be a valid up-trend without looking at any upward movement? If you do look for an upward movement, what are the characteristics of that blue bar? Thanks.
If the index falls below its previous low — the bear market continues. If it rises above its previous high (after a minimum 2 to 3 week correction) then we have a primary up-trend.