Two weeks ago I discussed with you the possibility that the U.S. stock market might have topped out . Since then we have seen further evidence signalling that at least a more serious downside correction or consolidation has started. Now the question is, how deep this correction may be and when it will be time to buy.
First and foremost, I think that one should follow the trend no matter what. Sometimes that’s not easy though because the trend may be higher on the daily and weekly chart (as one can see now on Nasdaq 100 charts), but it may be down on hourly chart (as it is right now on Nasdaq 100: just take a look at this hourly chart: will you ever go against such strong trend?:)
http://www.trendrecognition.com/images/stories/2012/indexes2012/nq100_vst_20121015.gif
Now back to our main questions – where the market can find a bottom. I think several things should be observed when trying to find the answer:
1.) emerging markets: right now emerging markets ETFs have started to underperform the U.S. stock market agian. Should a bottom is made, they should turn up first in my opinion.
2.) the behaviour of VIX is very important. Should it climb above 17.0 or 18.00 level, that will be quite a negative signal, suggesting much more downside.
3.) leading stocks like AAPL should find support and turn up either first or together with the general market.
4.) the price pattern on weekly chart of semiconductors (SOX index or SMH ETF) is really important here. Go to the weekly chart of this sector and you will see a huge Contracting Triangle from early 2011. If this sector breaks below its July 2012 low, this Triangle will be considered a bearish one. In this case, I would not hope to see a major low soon.
Bottom line, I think one should pay attention to the factors mentioned above for early signs of the market direction now. Right now based on the wave intrepretation of the weekly chart of S&P500 and Nasdaq 100, I incline to think that the U.S. stock market has arleady topped out and is heading lower in a significant bear market.
http://www.trendrecognition.com/archives?view=ap&aid=5400
Trade With The Trend!
Alexander
Trendrecognition.com
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