S&P Bull market or bull trap?

Follow up: Bearish US equities ideas
April 18, 2016
Can Nikkei be at the start of a new bull?
April 21, 2016

Over the past weeks many people tried calling the top in equity indices and failed on several occasions. I admit it that I was one of them as I believed that the rally off February lows was similar to the one we saw last September – November. The market had a different opinion. I will not follow the ones talking about the markets being rigged and manipulated by central banks. Not that I disagree with them, but I believe it is pointless in bringing forward all the reasons why the market should reverse and start a big correction, when the market does the exact opposite. My goal is to try to predict and/or follow the market in order to make money. Not to rationalize its moves and whether they are justified or not. Unfortunately I was wrong for the last three months and I’m paying the price.

It’s amazing how everyone in the internet on other paying services and in the financial sphere of twitter never make losing trades or are never wrong….well from me you get the truth and I will not be deleting any past tweets or posts where it shows I was wrong.

Enough with the talk, lets look at the S&P. As I have been calling for the entire 2015, the decline was not impulsive from the all time highs. This implies that we have either finished wave 4 at the February lows or wave A of 4. The rally off the February lows still does not strike me as an impulsive wave. B waves usually convince us that the previous trend (bullish) is back in force. Technically overbought stochastic has overextended its stay at overbought levels while the RSI shows bearish divergence signals.

spxweekly

Lets look at the bearish scenario first and its two divisions. First bearish scenario is that we are in wave B (as I do not see a clear impulsive move up) and a wave C should follow that will bring price below February lows near 1700. Around 1730 we find the 38% Fibonacci retracement of the rise off the 2011 lows. This is the most probable target for wave 4. The second bearish scenario implies that a long-term top formation is created and a new bear market has started. These two scenarios will get canceled if we make new all time highs.

SPXLONGTERM

On to the bullish scenarios now. The first scenario implies that we are currently in wave 1 of (circle) 5 of big III. So a wave 2 pull back towards 1950-1900 should follow if we make a top around 2100-2110. But still no sign of reversal. If the S&P continues with this strong bullish momentum we can see new All time highs before wave 1 ends and a pull back starts. Or is this the entire 5th wave up? This second bullish scenario could see SPX end the rise around 2200 and then reverse for a test of 2100-2000.

Personally I believe this is not the time to be bullish stocks or indices. This is the time to wait for the reversal signals to engage into new short positions. Wave 2 (if we are in the bullish scenarios) will be fierce to the downside. Good luck everyone and thank you for taking the time to catch up on my thoughts.

Alexandros Yfantis
Alexandros Yfantis
Fascinated by financial markets, studied International Securities Investment and Banking in the UK, works as a Portfolio Manager in Greece and runs a technical analysis website. Enjoys travelling and spending time with his family and preparing for the black belt in Korean Karate.