Where does this crazy market go from here? I read around a lot - maybe too much, and certainly have viewed too many hours of those cheerleading maniacs on the various financial news channels. Perhaps I've become too clouded this past week?
Anyway, first, lets take a look at the following chart, which details the 3 main scenarios that are currently out there in the financial blogosphere.
sp'weekly, - 3 broad scenarios
Outlook A' - A bounce...that keeps going...and actually puts in a new high on most indexes. Something around sp'1440/60, around Dow' 13400/700. From there, some 'chop' for a top, before a decline across the rest of the year to an eventual target - again, in the low 1100s.
B' - A bounce from around current levels, to either 1340..or more likely 1380. That would make for a significant wave'2 of 3, with 3' being a collapse wave of around 150/250pts to around 1200/1100 no later than end July. The wave'3 would include some very severe one day declines of at least 4-6%.
C', arguably the 'doomster' outlook, a straightforward continuation into the low 1200s, possibly spiralling into June to 1100. No bounces here.
The ultimate mind-frak
Scenario A' would be one hell of a disturbing wave for many short term traders. The bulls - many of whom are now finally turning bearish - and conceding a move to sp'1100s, would be annoyed to see a strong bounce to a new high. Similarly, the bears - now getting hyper excited for continued falls into June would be utterly dismayed to see indexes break new highs in a matter of just 4-6 weeks.
Even worse of course, a new high..but one that only lasts a few days or weeks. Luring in a new set of bulls at the top, and kicking out all but the die-hard permabears.
Yep, that scenario would be one hellishly annoying wave for just about everyone.
Next, lets keep in mind the bigger monthly scenario chart which I have regularly highlighted.
Sp'monthly - 5 broad scenarios
I suppose you could say scenario'A on the weekly chart, would equate to scenario A' on the monthly chart. Whether we just keep cycling higher to the upper channel line of sp'1550, I don't think that's what matters too much right now. What does matter is whether we bounce from the current level, and then actually break the recent index highs.
*It remains a little disturbing to realise that scenario E on the monthly chart is currently viable.
A possible wave count for weekly scenario'A
The following chart is something new for this weekend...so take a look!
Sp' weekly - count'1
You can see that the current decline is very much equal to the decline from last Octobers peak to the November low. The count itself looks very elegant in form, with wave blue'5 starting this coming week. It makes for a very curious observation, and naturally, it makes me wonder if scenario'A is actually going to happen, starting within 1-7 trading days. We'll soon know.
A few references/recommended reading...
Great Bear Blog
Cyclical Market Analysis
The above two links I highly recommend. I will note also (I forget the name), a self-admitted permabear guest who was on CNBC Europe just over a week ago, and he was looking for a bounce around these levels, with a final high in June/July. There are doubtless many others - not least the Permabulls, who are similarly looking for a rally from current levels.
As ever, its just something to consider.