S&P500 Update: Big drop underway, and how to forecast a bear market correctly.

Two weeks ago, see here, I posted that I preferred to see the S&P500 drop to around SPX2475 and found that the “… we may see a little more upside first, but not necessarily, before the next leg down to SPX2705-2685. From there we can assess what the market’s most likely next move will be.” Here we are 120p lower (!), and we didn’t even get that possible little more upside as the S&P500 instead moved straight down to SPX2705 and 2685. Another correct call.

Once the SPX2705-2685 target zone was reached I updated my premium members that the downside wasn’t over yet and we should see “one final wave down to SPX2675 +/-5 as the 5=1 and 200-223% Fib extensions lined up” for that zone, and that we should then “only expect a 3 wave bounce to SPX2730-2760“.


Fast forward, two days later the target zone was already reached (see here). Another correct call. Although shorter term I’d ideally had liked to see a clearer, more pronounced, “a,b,c” move up into the target zone, all the market gave us was SPX2747, but I informed my premium members that “a direct move below SPX2690 without making a higher high would lead to new lows” before it embarked on its next over 100p drop. At yesterday’s low, again, we have a five wave impulse complete and I therefore view the current price action as yet another bounce being underway to SPX2675-2715, with an ideal zone of SPX2690-2700 before the next leg lower happens to at least SPX2600 for a possible double bottom. See below.

SPX 1min

Why do I keep looking lower? For one because price is below its 20-day to 200-day Simple Moving Averages and all these SMAs are pointing down. I view this as a Bear Market setup and not a Bull. Note that all indices (NAS, NDX, INDU, NYA) have the same setup. Hence, by putting on a Bear hat instead of a Bull cap, one can view the market from its proper characteristic: failing rallies followed by further downside. Trade it accordingly.

SPX daily

Hence, while many were looking higher (even as high as SPX2860-2910), I’ve preferred to look lower and I will keep looking lower until the market tells me differently. Knowing the correct market’s characteristics -Bear- by looking at for example how price is related to its SMAs has certainly helped me, and allowed me to many times correctly projected market turning points, which in turn has allowed my premium members to a) minimize losses  (rule #1) and b) profit from. Because please remember in a Bear market he/she who loses the least amount of money comes out a winner.

Arnout, Ph.D.

2014-06-10 17.07.27-small

Founder and President Intelligent Investing, LLC

Vice President NorthPost Partners, LP

One thought on “S&P500 Update: Big drop underway, and how to forecast a bear market correctly.

  1. Pingback: S&P500 Update: Is a Bear Market Around the Corner and why Fundamentals won’t tell. | INTELLIGENT INVESTING

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