It looks like it took two days instead of one day to fully engulf the maribuzu candlestick of two days ago. This is a bearish sign.
Other bearish signs today include the VIX confirmed MACD histogram buy signal, the heavier down volume and what appears to be a MACD that wants to curl over to the downside soon below the zero line which is usually very bearish. The VIX made a big move again but we need to see it blast above 48.20 to get into the hyper panic zone. Also bearish is the skyrocketing US Dollar Index.
Despite the bearishness, I still have to say that we made another higher low today since August 9, 2011 low. This is the 5th higher low since that time and one has to wonder why the bears did not take the ball today and stop that trend.
As bearish as I am, the fact that we have a 5th higher low is still bothersome. I still think we will bust down next week however and maybe even jump to 1010 or 1050.
The most ultra bearish possibility seems to be a drop to the low 900’s in the sp500. It seems absurd to even consider a number in that range could be reach so quickly but we are in unchartered territory here.
In the past, Fed meetings have led to the huge upside market bounces and managed to halt very severe market declines on the psychology that the Fed will put a floor under the market with whatever rescue plan.
So we know that the next fed meeting is 7 to 8 trading days away. We also know that the initial decline in early August was about 7 to 8 trading days (the worst of it). So to me it is not a stretch to conclude we could see symmetry of another 7 to 8 days hard down right into the Fed meeting either at 1010 or 1040 or maybe a lower number on sp500 and that will mark the next floor in the market.
It all seems too perfect? But that is what I see from the current juncture.
I suppose there is an outside possibility we do an 87 style and get to 900 right away but we will just have to watch the tape on the day to day and see how it evolves.
I am quite shocked honestly that the FED has not stepped up to the plate early and said they will hold their Fed meeting early this week and do this or that and get in front of the curve. Who knows maybe they still will, but for now it looks like we are about to bust to the downside big time.
P.S. For the bullish scenario to still stay alive we need to see the market not bust today’s low and just drift sideways and then try to jump higher again.