Establishing Lower Support

Since my last post, the markets have been doing some much needed soul searching. The view that stocks are still continuing on the same upward path established from the 2009 low is finally falling away as long term uptrend support levels have been conclusively broken.

That does not mean that we’re yet in a bear market, but it does mean that expectations for gains in the major indices must be dialed back considerably. Numerous fundamental factors are at play here, including dollar strength, EM weakness, and US monetary tightening.

What we can expect is a downshifting of the medium term trend in stocks, and more choppy sideways motion, at least until conditions on the ground change in favor of more rapid upside.

S&P 500, daily bars

S&P 500, daily bars

What we see here in the daily chart is that confluence of trends, the older more rapidly rising trend channel giving way to the newer, flatter one, the lower bounds of which we’ve been plumbing and testing for the bulk of 2015 to date.

Major support currently falls around 1820 and 1800 (with lots of air below that), and the first meaningful resistance coming in around 1890. Above that, the S&P is clear up until 1970.

Could we be looking at a bear market? Yes, all the nascent pieces of a baby bear are in place, but we’ve by no means confirmed a true bear market. There is still significant support in place. However, we must proceed with caution in our trades at this point, as we could be on the verge of the first true bear market since the Financial Crisis. Good luck out there.

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