One other analysis that defends a bearish stance on the U.S. Stock Market:

I just saw a chart that plots Margin debt in the NYSE from 1995 thru today and also plots a 12 month moving average. In 2000 and 2007 if you sold when margin debt broke below the 12 month MA, it would have saved investors a lot of pain (or made good money if you went short). Now there was a cross once in 2011 that did not work out, but if you sold on the first cross and bought back in when it crossed back you wouldn’t have lost much. Also in 2011 margin debt did not make a ‘lower low’ after cross the the 12 mo MA. Today we have crossed below and made a lower low.

The person doing this analysis projects that if people who own stocks an margin decide (or are forced) to pay down their borrowings, he forecasts a 36% decline over the coming 30 months.

Just follow the money.

As a short I have to admit that I am amazed by the rally that we have seen since Tuesday. Making me seriously consider Stops as I can see scenario’s where SPY breaks out to new highs. In addition to your analysis, there are a few other indicators that I believe solidify the bearish case:
– The Semi’s are down today driven by Micron Technologies earning’s miss and lowering forward guidance; MU is down 9% today as I type this. Makes me feel Book-to-bill trend may be limited.
– Financials (XLF) finding resistance at declining 5 day moving average
– Dow Jones Transports has clear series of lower highs and lower lows below declining 200 day moving average

As always thanks for sharing your thinking on the markets.

Good luck to everyone and enjoy a wonderful holiday weekend.

Mitesh- Yes. I’m looking a solid break and/or close of both SPY 211 to reduce about a third of my short exposure, as that is a pretty significant level but with QQQ is still comfortably below both its primary downtrend line & especially the 2015 highs & the top of the big & technically significant “New Year’s gap”, I’m not overly concerned with this bounce just yet. However, these are the levels on QQQ that, one by one, will give me cause for concern & in which case, I will begin scaling out (closing out fractional positions) if & when they are taken out on a 60-minute or daily closing basis: 108.80, 109.35 & 110.65, the latter of which the Q’s has absolutely no business trading above if the market put in a lasting top in 2015. To quantify it, those levels are about 0.5%, 1.1% & 2.3% above current levels.

Hope this help & keep in mind that my stops are determined on my overall cost basis, my risk tolerance/stop allowance & read on the market so those levels certainly are not one-size-fits-all stops. However, those are technically significant levels IMO & could also be used for someone scaling short here (I’m not adding anymore unless we reverse with some type of bearish confirmation on the reversal) as well as those looking to add long exposure on the breakouts above those levels,