SP500 Retraces Most of October’s Gains Sets up Bearish Monthly Reversal

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As predicted, the SP500 is on track to retrace almost all of the month of October’s price gains and set up a very bearish looking monthly price bar going into this Friday.  I continue to remain short and will look to add new shorts to any type of bounce that arrives either tomorrow or Friday.

The SP500 also did something very important technically today for the first time since the March lows.  It broke below the up trendline in force since March that has defined this bounce and mega rally.  It also broke through this support area on considerable volume.

It sets up a possible ‘bear kiss’ where price moves back up to the underside of the trendline which would once again setup a very attractive shorting point.

There is a bunch of economic data coming out in the morning including the GDP which an economist at Goldman Sachs has estimated will be a few tenth percentage points less of what is expected.  But I suspect the market already knows this and maybe we will get some sort of gap down tomorrow and slight follow through but then intra day reversal to close at the higher end of the range tomorrow, setting up a bear kiss rally into Friday.

This market is set up to get spooked big time and I think no matter what it is not a bad idea to keep a core short position going into 1st or 2nd week of November.

My previous post was a stock crash comparison.  That could be an outside possibility if a combination of factors all come into play at once.  But obviously extremely difficult to predict.  But I would say that I would not at all be surprised to see a one day 5% down day at some point over the next week or two.

Any rallies at this point should be shorted and re shorted in my opinion.  The tide has decisively turned and shorting mentality needs to come into play for now.

I noticed that we are also starting to hear more not so good news from Iraq, Pakistan and Afghanistan recently but it has not really become persistent ‘crisis news coverage’.  Maybe it won’t turn into that at all, but I am just mentioning it because the market is so fragile and nervous right now that any seriously bad war news or other news could really spook the market and end up causing one of those 5% down days in my opinion.

My charts and favorite indicators point to at least the possibility of a historic crash by Monday or Tuesday of next week, or perhaps by the end of next week.  Why? Well it all has to do with psychology.  When people realize that the rally was fake, they are going to go into TILT mode and and hit the sell button FAST and much faster in my opinion than was the case during the previous October.  There was plenty of mental training to get into sell mode during last years mega bear, so it could very well kick into high gear faster this time.

So to conclude, I continue to see broadening topping patterns in many stocks all over the place that point to heavy downside tape action during the next 1 to 2 weeks.  The decline could approach the vertical, or not, but the bottom line for me is that it will be generally down, not up..

Posted in Index Trading, Market Timing, SP500
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