Technical analyst Clive Maund explains why he believes the stock market rally of the past couple of weeks is not a resumption of the bull market.
This is a very timely point to remind ourselves that when the market
broke down and plunged a few weeks ago, it did so from a parabolic
blowoff top, or as we had defined it, a 4-arc Fan Ascent, which amounts
to the same thing for practical purposes, a top that was accompanied by
all oscillators and indicators being at record overbought extremes.
While this top may not look all that extreme compared to something like
Bitcoin, we should keep in mind that the broad US stock market is
infinitely greater in magnitude than something like Bitcoin, and
therefore vast amounts of capital are required to create any kind of
parabolic blowoff. Given that there was a long lead in to this
parabolic blowoff it means that the stock market is done—finished—and
the bell has been rung on a new bear market.
Apparently the reason that the market got a bit of a boost yesterday was
that there was talk going around that the Fed “realized the error of
its ways,” and would backtrack on QT (Quantitative Tightening) and
resume QE and happy days would be here again. There’s only one problem
with that argument, and it’s a big one, which is that if they try to
resume that course in the face of gargantuan and fast rising deficits,
they will crash the dollar and send rates through the roof, causing the
economy to implode anyway. So, to use a rather hackneyed old expression,
they are caught between a rock and hard place, they can no longer have
their cake and eat it, and its payback time as all their financial
crimes of extreme profligacy for years on end finally catch up with
them, and unfortunately, the rest of us. Going
back to QE just won’t work and that means the jig is up on this
bull market, which, of course, is what we would expect after a parabolic blowoff top.
So how is the market looking now on the charts? You may recall that we called the top of the market within a week, and then the bottom of the plunge right after it occurred, when we closed out all Puts. A few days back we called the top for this rebound and put money on it
but thanks to yesterday’s rather sharp rally, folks may be wondering if
that call is wrong—is it? Let’s now examine the latest 1-year chart
for the S&P500 index to see how things look.
The 1-year chart is very useful as it enables us to put the rebound of
the past couple of weeks in the context of the 4-arc Fan Ascent into the
bull market peak and the plunge that followed. Given that, as we have
noted above, parabolic blowoff tops coming at the end of a long
bull market are just that, tops, and are not corrections or
consolidations as the government and Wall St are trying to make out, it
means that this rebound is nothing more than a bear market rally to
correct a deeply oversold condition, that should not make it back to the
highs. This rebound was in order and we expected it, because the market
had plunged into a still steeply rising 200-day moving average, which
meant that the rebound would be sizable, and it has been. Since the top
is in and a bear market has started, the maximum rebound to be expected
was just under two-thirds of the preceding drop, or Fibonacci 61.8% to
be precise, which is why we shorted it by buying bear ETFs last week
when it recouped this percentage, since which time the market has risen
marginally above this target level as can be seen on the chart, but
interestingly yesterday’s rally did not succeed on closing above the
intraday high of the previous Friday. Thus the market should turn lower
here or very soon and we are believed to be at a great point to short
The 2-month chart shows recent action in much more detail. On it we can
see how at the bottom of the plunge the S&P500 index bounced almost
exactly off its rising 200-day moving average, making a large bullish
hammer-like candlestick. Having reached our target for the bounce the
market started to run into trouble this past week and some bearish
looking candlesticks appeared, but then on Friday it put in a better
performance closing with a larger white candle, but as mentioned above
this did not break above the previous Friday’s intraday high, nor did it
break above the resistance level shown which put a lid on the advance
all week, but whether it does or doesn’t short-term, this is now
regarded as a VERY bearish setup, with renewed decline expected
imminently whose 1st objective will be to retest the plunge lows.
Conclusion: the rally of the past couple of weeks is not a
resumption of the bull market, as the government and Wall St. would have
you believe (“we just had a normal 10% correction”)—it is a
countertrend relief rally within a bear market that promises to be
severe, and it is believed to have run its course. This means that we
are at a perfect or near perfect point to short the market for a downleg
that could easily be worse than the first one, an ideal time to load up
on Bear ETFs and Puts,
which is what we did last week.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
Source: Clive Maund for Streetwise Reports
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1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
Charts provided by the author.
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stockmarket analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.