got the drop, now looking for a bounce...

From the last post I noted that the inability to hold the SP500 1225 level after an initial bounce could result in a +3% move below the 1225 support level. Right now the SP500 reached an intra-day low of +3% below the 1225 breakdown. With the stock market being short term oversold I would look for short term bounce to start very soon either by tomorrow or Wednesday. The chart included shows what I'll be looking for... a bounce rally back toward the 1225 level and then back below today's low of 1183 (or the price low tomorrow if it moves below 1183) before getting a better short term or even a medium term rally back higher. Other scenarios could develop... the stock market can go either much higher or lower... but we'll see what develops in the coming weeks.

line is drawn... market must hold here

The stock market had a great +1 month rally since the last post. For the last two weeks the 'pause before going higher' scenario hasn't developed and the major indexes has moved down to an important support level. For the SP500 this is the 1225 area. No doubt there should be a bounce around this level but if the SP500 stays around the 1225 area without moving back higher then for the short term another +3% move down could occur.

short term low or bottom for the year?

Was looking for the stock market to probe a bit more lower the last two trading days... especially the SP500 to retest its August lows (which the Dow and Russell 2000 indexes did last Thursday.) But the stock market rallied instead and Monday's big rally should provide at least a short term rally for the time being. The stock market was already near range levels which I would consider very good long term buying opportunity. Which raises the question... could this be the bottom for now for the rest of the year (though just 3 months?) If so then a +20% rally from the SP500 1100 August low toward 1320+ could occur. If not then I still see minimum downside risk of less than 5% before moving back higher.

looks like retest or break down to new lows

Important stock market bottoms are usually a process and not an event. And in the current case it's likely the August lows will be taken out and the stock market should probe lower. This should provide a medium term bottom and rally to occur soon. Unsure if this is THE bottom but should be A bottom. The August lows and at lower levels should provide long term risk/reward returns.

one of the three best buying opportunities in a decade?

Thus far the major indexes are close to or about 20% off of this year's high. Seems like a typical 20% correction every year or so. But it's the short two week violent move and intensity of the correction that makes it remarkable. From a long term perspective this could be a good long term opportunity to add positions to one's portfolio. The other two good long term buys I'm referring to are 1) the DotCom Crash bottom from October 2002 to March 2003, and the Credit Crisis bottom from October 2008 to March 2009 bottom. In the near 3 to 6 months period it could be some pain but in the 1 to 2+ years horizon the reward should overcome the current risk.

caught in downdraft of a crash... what now?

Two weeks ago saw hints of at least a short term pullback...not...as it turned into a market crash instead. Price-wise it's the typical 20% correction every other year or less... but it's the the violent move down and intensity, in just two weeks, that marked this event in comparison with other important bear market crashes/corrections. If we're at or near a low then a strong 5-10% rally for a week or so should occur and then never correction to occur back below to new lows. Pretty similar to last summer's flash crash event.

no rally but setting up for a medium term buy

From the chart the green arrow was a forecast of a short term oversold rally toward the SP500 1320 level which didn't occur as the stock market continued to move lower (and another -1% lower for the SP500) last week. As in the past several posts I cautioned of tendency of the major indexes (Dow, SP500, Nasdaq, and etc.) to retest their 200 day moving averages within a year. Today there were several cases of retest from the indexes, like the Nasdaq, but the Dow and SP500 didn't but are very close though (with SP500 being 1% above it today as indicated by the blue line on the chart.) With this retest being nearly completed and many medium term indicators now in oversold buy levels the risk/reward going forward for the next 3 to 6+ months for the stock market should shift bullishly to the upside.

Another short term oversold rally

Since last update (and using the chart from the last post), the SP500 did rally to and break above the green line to 1345 and then went back down with heavy selling toward the red line with close today at 1286. At this point I'm expecting another short term rally that should last about a week or so and with gains in the 2% to 3% range (probably below 1330.) From there should expect one more selling to push the SP500 back to retest today's low of 1284 (and likely brief break below it.) So could be looking for a medium term bottom by late June or later and afterward a summer rally attempt to break above this year's highs.

Very oversold rally soon but next day unclear

In a medium term bull market I would usually look for at least a short term rally here. But I unsure if the market had instead turned medium term bearish and if so then I would anticipate maybe another 1.5 to 2 percent correction down before getting the short term rally (the chart above of the SP500 illustrates the red arrow.) The other scenario is the market would get about an 1 percent rally first (as illustrated by the green arrow) and from there will see whether it'll move higher afterward (which would mean we're still medium term bullish) or as from previous comments... a move back down to new lows.

Weak internals hints of more downside

Was late getting this out due to busy weekend. The inability to move above recent highs with internal weakness (majority of individual stocks not moving higher and breaking to new lows on weakness) hints strongly that my 2nd scenario of medium term weakness of at least +5% in order to re-test the 200 day moving average. My 1st scenario of a moving higher did not materialize. So far now unless the major indexes can move back above last week's highs then the risk now is to the downside for the coming weeks.

Nice rally now to continue higher or at an end...

From last signal it took several days (and few sell-off days) before blasting higher for the major indexes. Now the indexes are at an important point of what appears to be a break-out higher of a bullish 'inverse head and shoulders' pattern from the chart below with the green line. Also there's a potential bearish 'double top' pattern in the chart with the red line. The stock market is near short term over-bought so there could be some near term consolidation/pause before one of these two patterns take control. My take is that the bullish pattern will be in control... but we'll have to see what develops. I also marked another red line of the last time the indexes (using the SP500 below) last 'touched' its 200 day moving average. General rule, the major indexes usually don't go beyond 12 months without re-touching its 200 day moving average. Like my last post noted, the major indexes will either continue higher and then 'crash' back later toward the 200dma... or break down lower now toward the 200dma and then move strongly back higher later (that will depend which of the two bullish/bearish patterns take control in the coming days.)

The pause/pullback is given way to a low soon...

The stock market gave up little ground since last week's signal for a pause/pullback and is now hinting of a possible short term low with a set-up for a rally. For the medium term, I'm uncertain if the stock market will continue to grind higher from current levels or that it'll content with consolidating and eventually sooner rather then later the need to retest it's 200 day moving average. In most cases, the major indexes will retest their 200dma within 12 months. It has been almost 7 months since they last touched their 200dma. So the uncertainty is will the major indexes continue higher for several more months and then crash back down (like beginning of May last year because of the 'flash crash' when it finally retested their 200dma after 10+ months.) Or the stock market will get over it by moving back lower (over +5%) and retest by summer time and then power back up afterward.

The chart below is the Nasdaq and will likely retest the 50dma (blue line) and because of short term oversold should get a short term rally. The red line is the 200dma and the uncertainty for the medium term is whether the stock market will retest it soon rather then later.

Great short term rally in need of a pullback/pause?

Very strong rally in the past 10+ days usually a very good indication of further upside for the next 6 to 12 months (or at worst, limited downside from the March bottom level.) While the major indexes have moved up strongly... Dow, SP500, and Nasdaq, there were some technology sectors that lagged or gotten hit to the downside such as networks and semiconductors. So while the long term view (6 to 12+ months) is still bullish for the stock market, the short term (from a few days to a few weeks) is due for some pullback. For the medium term (1 to 3+ months), the recent very strong rally has a history of being forwardly bullish but I would still be cautious of a bigger pullback or even a retest of the March lows if the pullback is more than +3%.

short term outlook with medium term set-up

Seemed like a very long week due to the disaster in Japan. Hope the nuclear plant crisis can be contained soon as the Japanese are strong willed people and definitely pull themselves back up.

The stock market took a beating this week and for the short term the Nasdaq and SP500 could rally back 4 to 5% from this week's lows to back toward 2720 and 1300. There are two possible scenarios (out of many) that I could see occurring. Scenario 1, after a short term rally the stock market will return back down to make a new lower low for a medium term bottom. Scenario 2, this week is the medium term bottom and the short term rally will be followed by a very brief pause or pullback and then finally start a new rally higher toward the February highs (and maybe head much higher afterward.)

Will monitor how the scenarios develop for the stock market. For now, at least a short term bottom.

medium and short term outlook

The Nasdaq is down about 3.6% since the highs of last week. Thought the Nasdaq could make one last strong rally higher. It could but the correction that started from last week is starting to look like there could be some correction and consolidation for the coming months. A break below last week's low of 2705 could confirm such a pause trend. The long term trend remains bullish. For the short term, and possibly the medium term, a correction and consolidation of the 6 month rally off the late August lows is needed. Asset allocation remains on the low side of less than 30% or switch to all cash.

long term and medium term view

Thus the stock market continues to move higher as there are renewed rotation of money into stocks that corrected or pulled back from most of the 4th quarter. This type of market action should strengthen the long term view that the stock market is still in bull market mode since the March 2009 bottom. The medium term and short term has the market being overbought as the major indexes won't pullback and now there is rotation of money into different sectors to assist the market higher. Due to the high readings on many indicators, asset allocation to stocks from one's portfolio is advised not to exceed 40%.