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US Stock Market Correction Appears Imminent

With all major US equity indices approaching the apex of their large bearish rising wedge patterns, all which are confirmed with negative divergences on the price & momentum indicators, it appears that the odds for a major sell-off in the US equity markets at this time are substantially elevated.

I recently published a comprehensive video overview of the Nasdaq 100, including the top 10 components of that leading index but for those that don't have the time to view the video right now, you might want to watch for an impulsive breakdown below these large bearish rising wedge patterns/uptrend lines on the SPY & QQQ (IWM has already broken below its comparable wedge pattern), as taken in conjunction with all the other recent bearish technical developments that have been covered in recent months, that could signal the beginning of a the next major downtrend in the US stock market.

$WLSH daily Oct 7th

$WLSH daily Oct 7th

Oct 7, 2016 12:43pm|Categories: Equity Market Analysis|Tags: , , , , , |4 Comments

4 Comments

  1. Profile gravatar of lucyp56
    lucyp56 October 7, 2016 7:25 pm at 7:25 pm

    Randy, on the targets, T1,T2, T3 for the SPY can you tell me the targets or approx. target ranges. its kinda hard to see on the chart. thx L

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    • Profile gravatar of rsotc
      rsotc October 8, 2016 11:21 am at 11:21 am

      Those 3 key support levels on that SPY daily chart where the odds for a reaction are good if/when we get there are at 212.21, 204.00 & 199.00. A couple of things to keep in mind: Until & unless both the SPY & QQQ breaks down below those uptrend lines with conviction, the major indexes (QQQ & SPY) are still trading above those key support levels & could make another thrust higher before breaking down, assuming that it does so soon (which I expect it will). Another point worth mentioning is that whether or not the SPY bounces off those targets in that scenario will largely depend on how the charts (intraday, daily, etc..) of the SPY as well as the other major indices look as prices approach those levels. In other words, we could smash right through any of those levels or reverse just shy of or just below them, again, depending on how the charts look at the time.

      I also wanted to make sure that you were aware that all of the charts posted on the site, small or large, can be expanded to full size by clicking on them. I save my charts in a high-resolution format so they should be viewed clearly on both computer monitors as well as mobile devices. If you click (or press & hold) a chart on a mobile device, you should have the option to “view image”, which will expand the chart & allow it to be pinch-zoomed and panned in order to see the levels up close in detail. Let me know if you have any questions or issues viewing any of the charts & I’ll be glad to help or provide details on the key price levels.

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  2. Profile gravatar of greenlander1
    greenlander1 November 10, 2016 5:17 pm at 5:17 pm

    How do you factor in end of Q4 seasonality and overall bearish sentiment into this?

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    • Profile gravatar of rsotc
      rsotc November 11, 2016 1:03 pm at 1:03 pm

      Excellent question greenlander1, so much that I plan to respond with a more detailed reply that includes several charts. Until I get the time to put that together, I’ll say that there are several variables, one of the most important being that regarding seasonality, I always try to dig down into the commonly used “blanket statistics” like stock market seasonality number by taking into account where the stock market & economy are in relation to the business cycle vs. simple going off long-term seasonality statistics.
      For example, we all know that stocks, by far, rise more often than they fall. In other words, over time, stocks are in a bull market much more than they are in bear market. Other than the fact that over long periods of time, the stock market rises due to economic growth, inflation, etc…, one also has to keep in mind that stocks tend to fall much faster than they rise. Therefore, while bull markets typically run 5-6+ yrs, bear markets, which can wipe 30-50% or more of the preceding bull market, typically last less than a couple of years.
      We are very well into the second longest bull market in history as well as one of the longest economic expansions. Therefore, statically speaking, the odds for a bear market have been high & continue to increase every day. In other words, if we were only 1-3 years into a bull market, I would give a much higher weighting to bullish seasonality statistics whereas now (and I’ve studied the charts in detail on this), I put a much higher weighting on the fact that most of the biggest drops in the market historically have come in Q4, especially at the end of a bull market (e.g..- Q4 2007).

      Regarding sentiment, I certain pay attention to the sentiment surveys, such as AAII, which BTW, just released this article yesterday: http://blog.aaii.com/aaii-sentiment-survey-optimism-surges-at-highest-level-in-a-year/ …and I also put a lot of weighting into not just what investors are saying (such as the surveys) but where they are actually putting, or not putting their money (P/C ratios, short interest, etc…).. all of which are bearish from a contrarian point of view recently as well as that AAII survey above. Again, more soon if/when I get the time to put together some supporting charts.

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