Bounce back - what next

The bounce-back - now what?
Technically: markets were oversold, the fall overnight, when the Dow futures were down by 600 points, was low participation and by the time Europe opened the relief rally was underway.
2000 points loss on the dow in less than a week.

some charts and possible paths for the rally
WATCH THE VOLUME ON THE BOUNCE - LOW VOLUME WILL BE A WARNING THAT ALL IS NOT RIGHT!!

DOW daily
The fall overnight pierced the 200 DMA - for some that is a KEY LEVEL, so it looks like the PPT may have stepped in to prevent a crash on Tuesday morning
so a stick save - but where to now?
The "managed" fall tagged the lower upper trend line - so if the bull trend is in force then the rally should head to the upper trend line if this rally is only a correction of this fall likely target is 62 % retrace (marked in red)

Nasdaq daily

Looks like the fall also tagged the rising trend line so BULL market still intact

However, the fall was characterised by a few gaps down so it is possible that an attempt to fill the gaps will happen.

marked on chart at 7640

Jack be nimble....

Wow - some overnight moves - sometimes it pays to stay up a little longer when markets are like this.

So overnight it looks like there was a mini capitulation of sellers (see chart) - and a subsequent short-covering rally.

So now where?
The drop tagged the 78.6 % Fibonacci retracement level, and rallied 600  points - these markets are NOT for the faint-hearted- hence the title of the post -
1. this fall may mean more to come medium-term
2. snapback rallies can go further than one might think.

Strategy
keep an eye on key levels for buy/sell opportunities
if trading intraday - be vigilant - and manage risk
best strategy is to wait for key levels

Longer term view Nasdaq

So although the sell-off at the end of the last week will be blamed on Trump tweets, in reality, news usually doesn't matter in the medium term.  so where next for the markets?

We can't predict this, but we can look at various scenarios, and assign a probability to them.

Nasdaq weekly chart

Technically - the negative divergence between price and RSI (price making new highs - RSI not) - usually a negative sign for the market
The bull market has lasted over 10 years to date

What are the scenarios?

1.  This fall is the start of a correction of the December 208 rally to new highs.  looking at Fib retracements 62 % is quite common but the correction could stop earlier than that.
This is the most BULLISH scenario - supported by uptrend still intact, interest rate outlook conducive to more risk.
2  The recent fall is the start of the Trump rally correction - this would be a deeper fall and targeting the lows in December

3 The bull market is ended and the correction/bear market will correct the rally from 2008

Scenario 1 is more likely at present; low-interest rates, an election year in USA 2020,; however if the falls become more pronounced or a rally fails to exceed the recent ATH - then should be on the look out for deeper corrections.

A quick look at the daily charts also shows the negative divergence.

January almost finished - no real change

So the market maintains its rally since New Year, and now in wait mode;

1. Fed
2. China - Trade

Market sentiment (use CNBC!)
Kramer declared bear market over
Bulls are back, supported by view that Fed will not raise or only raise once

but...  even cyclical bear markets last 12-18 months - so far 3 months

Obviously markets don't go straight down, and classic bear market rallies suck in shorts and bulls to believe that the BULL is back..

Charts don't lie
A lot of damage done technically in the autumn fall..

Look at the DOW charts for various time frames


Dow monthly

No real change but updated view with recent price action
still see that the rally has not recovered the broken trend line (rally from 2016)
coincidence? 
the 61.8 % retrace of the 2016 rally coincides with the 38.2 % retrace of the 2008 rally , which coincides with the up trend line from 2008
TOO many coincidences?
IF the market trades towards these "coincidences" looking at DOW around 19k -20k

The weekly and daily are self explanatory.
Bumping against the down trend.
Weekly RSI show clearly the "wait mode"

DOW weekly 

DOW daily

Market correction of Trump rally or 2008 rally?

The markets are obviously correcting and have been since October.

The US markets have outperformed the rest of the world.

European markets seem to be in bear moves since around May 2018.

So the BIG question is - referring to US markets and the DOW in particular;

What exactly are the markets correcting?

Since 2008 there has been a bull market

Within the bull market there has been a correction leading into 2016 , and a rally since then - the " Trump" rally.

A correction in early 2018 and a rally to new highs

DOW monthly chart below

The box outlines the Trump rally
Show a double top
The rally has retraced to the 23.8 % Fibonacci level, this is usually the minmum retrace
Odd are that it will test the 38.2 % level , 22300 approx.
Why?  Too many investors are still in the BUY the Dip mentality
The market has changed since the first correction on 2018
There are genuine concerns about a slowing economy in 2019 which doesn't support valuations seen earlier in 2018 - whether recent falls have made these fairer is still open to debate - so UNCERTAINTY - never good for markets
Trade wars - more UNCERTAINTY

What if the correction is actually of the whole rally from 2008 ?

The market has rallied over 300 % since then
A correction of that would be more severe (and still be in a SECULAR BULL market)
DOW chart below showing Fibonacci retracement levels
Coincidence - 23.8 % retrace is almost same as the 38.2 % retrace shown in first chart (22300)
If the correction is for the whole 2008 rally, there could be a lot of pain ahead. 
In Elliott Wave terms the whole rally from 2008 could be a wave 3 (typically the largest and longest), with the fall in February as a smaller wave 4 and then rally to new highs for smaller 5 , which completes wave 3.

All that aside , favour a fall to 22300 unless the markets turn around PRONTO!

Talking heads (CNBC) keep talking about how the market is good value - good contra-indicator.

CAVEAT:  Medium term bearish scenario may change if there is some deal with China, the FED LOWERS rates instead of raising.

Crude thoughts

So crude oil has been relentlessly sold over the last month and a half..

remember things can go down in a straight line but not forever..

So is it time for a BOUNCE?

Look at the evidence, comparing price action and RSI.

On the daily chart there is positive divergence showing now (remember not an exact science), but this does show that the recent selling may be abating.

So where will the bounce go to?
Well using Fibonacci retracements (more on Fibonacci in the natural world also known as the Golden Ratio click here) .  Was God a mathematician ?  (video link) we can get an idea of where it may bounce to.

So if we look at the daily chart of crude, what is the positive divergence?
1. price has made a new low
2. RSI in the lower panel has not
indicated by the blue trend lines.

Will the move up be sustainable?
Well the down move was strong so any move up will be corrective, in Elliott Wave terms , the move up will be 3 waves (A-B-C) .

Then if OIL is in a bear move (evidence? - world is slowly changing to alternatives, electric cars, wind power, solar power, this will gather pace so oil may lose it's  standing as an indicator for the world economy over the medium term)
The next leg down will be even larger than this one if it is a wave 3 down (Elliot Waves - impulses are 5 waves)

Minimum target would be the 23.8 % retrace level ; Oil however tends ot overshoot both on the downside and upside so 38.2 % retrace is a very valid target.

DAX and FTSE bottomed, and breaking higher?

The DAX and FTSE look to have bottomed and now heading up.

Maybe it is just an extended correction of the move down, but also the €/$ has found support despite the NEGATIVE news with Spain, Greece and Europe generally..
IF they maintain bullish trend ...BUY corrections!!


DAX needs to break above 6430
DAX retraced close to 68 % (Fibonacci) of the rally from Oct 11

FTSE daily

Looks stronger technically than DAX as it has broken above previous high at 5585

FTSE also looks like a double bottom formed.

Dow weekly

Having a look at the DOW weekly and playing with some moving avgs (ma's)

200 week ma, 55 week ma and 34 week ma (the last 2 are Fibonacci numbers) Fibonacci numbers explained

On the bullish side it looks like we have had 3 waves up (Elliott Wave theory) and maybe one more up to complete a 5, maybe testing the 200 week ma?

On the bearish side we have 3 waves up (EW corrective wave of the fall from 2007, MACD has just turned lower.  Key levels may be the 9760 and 9000 area for a bounce in both bullish and bearish cases.

If bull then we get a new high, and then a wave 2 down, which may also be close to testing the lows in March 09

if bear then the next move up will not make a new high, and will be a wave 2 up...before a catastrophic wave 3 DOWN...

As can be seen in both bearish and bullish cases the moves are similar, that explains why trading can be so difficult, especially if you start off with pre-conceived ideas!! 

Here's another look at some monthly charts S&P monthly and DAX monthly both from JULY 09...

Here are the S&P and DAX monthly as of this week.