Saturday, January 05, 2008

IT sell signal

What a difference a day makes!. The inability of the market to recover after filling the ES 1436 gap and a lack of strong reversal EOD, caused some massive technical failure on weekly charts. Now we have serious momentum failure on the weekly charts. If we break the Nov 26 lows, we would also have to deal with a pattern failure (triangle pattern). The ball is now clearly in the bears court and i am bearish here. No reason whatsoever to be bullish.

So, now are we in a bear market ? Not yet. Not according to my indicators. Not until this indicator crosses below zero.

Don't get me wrong. I am bearish here, but an IT downtrend does not make it a bear market. Aug 04, April 05, Oct 05, June 06 have all had the same kind of momentum breakdown/configuration on the weekly charts. But they all resolved to the upside. The arguments then, were same as now. Internals breaking down, fundamentals (like credit mess, impending derivative implosion, consumer tapped out etc...). The fundmental arguments have no credibility left in so far as calling the bear market, cuz the market has rallied for 4 years in the face the same fundamentals or the fundamental expectations. Now during all those IT bottoms, it was the same sentiment on the message boards and among the market advisors. That any recovery back to the bull side was improbable and the bear market was inevitable. Clearly it was a wrong assumption in all the 4 instances. My indicator and my methodology has kept me on the right side so far and it also takes away any emotional reponse to market action and popular herding behaviour out of the equation.

What will create a bear market here ? IMO, three things need to happen here. The massive larger degree consolidation pattern or the topping pattern, as the case maybe, is yet to be resolved. A break of Aug 07 lows will resolve it to the bear side. A break of Aug lows would mean that we finally have bottoms below bottoms on the weekly chart. That's an unequivocal bear trend. That would also put to rest any bullish e-wave pattern arguments. That would also pull my LT indicator into the bear territory. Right now the jury is still out, but time to be very cautious on long side as the market has a serious chance of a collapse....