This is arguably the more exciting part of this weekends meandering thoughts from the doomster-bunker. The bearish outlook!
Okay, lets start with the near term...
Again, I will focus mostly on IWM, but the same pattern can be applied - to a large extent, to other indexes.
IWM - uber-bearish near term
It would seem - not least supported from Fridays' action, that IWM should fall to around the 76 level. Considering the depth of the MACD cycle, a bounce - to re-test 80/81 seems very likely.
As noted, what then matters is critical....
Bears MUST see a lower high put in. If we break above 84 for any reason, ALL the bear outlooks should get thrown out (again!).
VIX - near term bearish outlook
Bears will likely see VIX break into the mid 20s soon, but then..- as is usual, a typical retrace to 20, maybe even 19/18 again. What matters is that any retrace is brief and limited. By end March the doomers will want to see VIX breaking into the 30s..and beyond. Anything else, and the theory is likely cancelled out.
IWM - weekly, the 'high was put in last summer' theory
This assumes everything since October was indeed a wave'2 'abc' correction. Yes, some other indexes did break the summer 2011 highs, but NYSE, IWM, and Transports did not. Its highly debatable, and we will find out soon enough who is right.
Clearly if IWM breaks under 60, that would confirm the doomster outlook, and would set up the rest of the year for some extraordinary falls.
SP weekly - the abc move for 'wave 2'
The SP'500 remains very strong. Yes, we broke the May 2011 high, but so far, its by mere points. Bears clearly need to see SP' break into the 1240s to conclusively confirm the abc wave'2 formation, and to open up a challenge to break last October's 1074 low.
SP weekly count, with key levels
Again, critical key levels are around 1250, it would also be below any 'widening channel' theory that the bulls might attempt to see form.
Transports - Monthly, the doom count with Fib levels
Transports remain the most bearish index out there. Of course, rising Oil prices will be seriously damaging profit margins in this sector - along with any general weakening in the economy. We do have a possible top now, but bears can only get excited if we see the Transports first break back below the massive psy' level of 5000, and then 4000. A move below 4000 would be a massive victory to the bears this summer. With Oil prices continuing to show upward movement, that will certainly help to pressure this index lower in the coming months.
Are the Bears ready?
The doomer bears will need to see March be their month. Anything other than a dominating and consistant fall in the main indexes - arguably to at least sp'1240 (at some point) is probably just a minor retracement, which would then see the bulls re-take control and whack the SP' to 1400+ very quickly.
The key levels to break are clear. That is a good thing of course, since stops can be set very tighly, and risk exposure can be limited.
In Part'3, I will outline a brief summary of where I believe we might be.