Monday, March 09, 2009

Elevation of degree of bear market

Initially when i made the LT sell call in Jan 2008 at 1380, i thought it was a primary degree bear market. Then after the break of 1170 and the CYCLE degree channel, i elevated it to CYCLE degree. Timely elevations and updates are all on this blog.

Now here's something that i had not looked at, for the last few weeks.

The last CYCLE degree bear market in SPX had it's largest correction during 1973-74, of about 48.5% from it's top, in about 22 months. The current bear has lost about 56%in just 18 months on the SPX. So this qualifies as the largest, fastest drop after 1929. So the odds are we are now dealing with a degree higher than the 70s bear market, higher than a CYCLE degree bear market. I am elevating this to a SUPERCYCLE bear market.

Again, this is not what i think. It is what it is. It is what the market is saying. Absolute definitions of degree can be argued, but the relative aspect is clearly visible on the charts and amenable to measurements. That makes it an objective observation, rather than my personal judgement or decree.

All divergences erased

Price trends, breadth and momentum are my primary tools. Recall when i called the top in January i was looking for a test or break of Nov lows. At that point it was not clear whether we would get a retest or a break. But before SPX broke the Nov 08 lows, the NYSE MCO broke it, implying that SPX would. I have been hearing about these gut wrenching bear market rallies since the Jan top, because of all the divergences. Now let's get the fact straight.

1) NYSE and Nasdaq MCOs broke the NOV 08 lows
2) NYAD (cumulative bredth) made fresh new lows both on daily and weekly cumulative basis
3) NYUD (cumulative volume) made fresh new lows both on daily and weekly cumulative basis

So where's the divergences ? Bulls are making the same mistakes that bears made during that persistent advance post june-2006. Sentiment seems to be the hook here again. What's the point of looking at AAII i.e what the suckers are doing/thinking when the big money is voting for a down market, which is amply visible on the breadth charts ? How do we know if these AAII folks are even actively involved in the markets ?

As for the 9 month cycle crest, the only conclusion i can come to, given that we did not get any rally into the crest is that it may have severely left translated. If that is the case, then we may be looking at a July bottom (a la 2002). But that's pure speculation. Let the market tell the story. The downtrend continues....