RE: Intrpreting today's actionsI use many technical indicators like MACD, Stoch, ADX lines, Fibs, etc... and these are useful, but do have limitations. For example, in this case, crashes always start from already very oversold levels. When the crash starts, many indicators will suggest that the market should be bought compared to normal oversold conditions.
For this reason I like to look at trading patterns, make comparisons to other historic crashes, and develop crash models to see how the market acted or should act under certain conditions. One of the most useful in the current situation is what I call "tape rewinding". From the April 2010 top, the form/pattern of descent is the same as the pattern of ascent from the March 2009 bottom but in reverse - hence I call it tape rewinding. Basically we are now declining in the same pattern as we came up.
Many technicians are looking for a right shoulder to form on a H&S pattern with the R shoulder (1150-1170 S&P) matching up with the Jan 2010 top. I'm confident this will not happen because the R shoulder has actually already formed. The flashcrash May 6 to 1065 hit the neckline, and the subsequent rebound to 1170 formed the R shoulder. The important thing to notice is that the R shoulder formed about 6 times as fast as the L shoulder. In other words the market is declining 6 times as fast as it rose from the March 2009 lows to April 2010 highs. It also means that we need to "catch up" in price (in a hurry).
By my time and structure calculations we are now forming the equivalent of the L shoulder of the famous bear trap early May to mid July 2009. If you look at $rifin during the first 2 weeks of May 2009 you will see that the banks had a sharp rally at the time of the government stress tests. The rally lasted a week and then collapsed the next week. If you compare $rifin to $spx during that time, you will see that the banks were rallying much stronger than the rest of the market during that early May period.
This past Friday, you will notice that the banks greatly outperformed the market. In other words the banks are acting the way the model predicts at this time.
So in the very short term the model is indicating that FAZ could drop some more fairly sharply but only for perhaps a day or 2. Then the banks and the market should collapse for several weeks straight. By about mid-July the model predicts that the market will be at the equivalent time-wise of the March 2009 lows. This should be the bottom for a strong V-type rally back up.
Importantly, the model does NOT suggest that the price will match up to the March 2009 low. It should be significantly higher and I have other methods to calculate this. What is happening right now is a very similar pattern to Nov 2008, and the bigger picture is nearly identical to the 1929-1930 period which lead to the great Depression.
I have numerous methods that I have used to calculate the time and price and they are pointing to mid July with my best estimate of July 14 and $SPX 820, $rifin 525.
Interestingly the statistics using traditional chart patterns (and based on 1000's of the same historical chart stats) also confirm the same price targets as the most likely outcome. If we draw an ascending broadening wedge starting in April 2009 to present, we can see from the following link that based on stats the wedge breaks downwards 73% of the time and the price target is the start of the wedge.
https://www.thepatternsite.com/abw.html This chart does not help with time though unfortunately.
I should mention that tape rewinding was also useful in predicting the rally starting in March 2009. Take a look at the left side of March 2009 and the right side for say 1 year both ways. The form is similar.
Some say that with so many bears around right now, how can the mkt crash? My answer is that the majority of the bears are looking for S&P 950-1020 as a bottom. The bulls and the bears are both wrong if my targets are met. Also, many say that the Fed/government won't let the market fall (using circuit breakers etc...) or interest rates rise. This is not true, it is and always has been the market which dictates what the Fed/gov't do. They now have very little power to intervene with the now failed stimulus, huge debts, and public uproar to bank bailouts....
So far the markets is acting in a way that is matching well with my models and calculations. The fact that so many methods are indicating the same result gives me confidence in the targets. However, there are no guarantees, there is an art and science to developing these targets, and I still need to monitor.
I have what I believe is concrete proof that the market is continuing the same bear market that started in 2007, and not starting a new bull market as many are suggesting. I'll post that in a day or 2.
SC