NEW YORK (TheStreet) -- The Dow closed Monday in the 15,800's, after visiting the 15,300's in the first hour of trading. That 1100 point decline is being called "capitulation" selling, when the bulls throw in the towel and capitulate; giving up their hopes of a bounce, let alone a recovery to new highs.
Up until a week ago, complacency was the obvious state of investor's mind. We warned three weeks ago (with this analysis) that weeks like the last were coming, and days like yesterday would become common. Now that we've seen a taste of things to come, we see more 1,000 point Dow declines (which actually close with four digit losses, rather than bounce back into three digit losses) scheduled for the next few quarters-to-years.
Hopes of bounces like the manufactured one at today's open (where rules that suspend the opening process are invoked) should be viewed as answered prayers, and accepted with the humility, as selling opportunities, rather than as rewards for emotional behavior, like holding through mini-crashes, then not selling as you promised you would if the market gods just allowed a bounce to make your account less bad. A deal's a deal, after all, and the market gods hate it when we welch.
Yesterday's low in the 15,300's took the Dow back to the area of pricing of June-October of 2013. Two years of what most thought was deserved reward for their hard work of stock analysis, erased in a couple days. What was obvious for two years became obviously wrong in the past two months. What's that all about? Bear market. These environments are very predictable, once begun, as they are guided by human emotions. Objectivity is always a better place to be acting from, which is not an easy place to get to.
Our decision support engine's algorithms are objective. Part of our (up until now accurate) forecast of the market's movements was for a five-wave decline to confirm that the bull market of the past six years is over, and a bear market for the coming two-to-four years has begun. Three of the required five waves of decline were in place by the opening of Monday's first hour. The action from that extreme low will be considered wave four up as long as it concludes below Dow 16,500, S&P 500 2000, Nasdaq 4700, Nasdaq 100 4200, and Russell 2000 1150. Closes above these levels will mean some other pattern is in play; one of which is the 2008 analog, and the other is the 1929 analog.
However, if the pattern of blue arrows in the big-picture Dow chart from yesterday's analysis are in play, then today's rally is a clear and present selling opportunity, as the danger has just begun. This chart is a zoomed in version of yesterday's; focus on the target of the June-to-October 2013 lows, where wave five of this initial decline should find massive support; 14,700 +/-200 (yellow box where first blue arrow falls into in next few weeks.
What else is objectively likely? Our crude oil forecast for $40 +/- $2 was met this week, and the next "big" move should be at least a multi-month rise toward $75. Detailed analysis and forecast can be seen here. This weekly bar chart zooms in on that analysis.
Euro futures are likely done with the rally off the March low near 1.05. The pattern from that extreme is overlapping, and choppy; the characteristics of corrections. Therefore, the recent rise corrected the slide from the 1.40 peak in 2014, and the next "big" move should be a test of the feared "parity" level of 1.00! Here's the picture.
Finally, thanks for all of the reader emails! We try to get back to you in a timely manner. The fastest way is for us to write responses in these pages.
The last chart is the weekly bar of the 30-year yield, that many of you have been asking about, as the FOMC approaches its eventual "initial," but not final rate hike in the coming three-to-five years. Regardless of what the Fed says its policy is on the one interest rate it actually controls directly, the market (herd of billions of people that buy and sell daily) decided that interest rates were too low, earlier this year, and have been taking them higher ever since. Notice the Elliott five-wave pattern that the herd has manifested from around the 2.22% low in January to around the 3.25% high in June. For simplicity, we'll call that wave 1 up of a "possible" new bull market in 30-year yields. Since then, yields have corrected to this week's low of 2.62%, in down-up-down Elliott corrective fashion, right into the Fibonacci .618 support line (yesterday's extreme low).
Our forecast, as long as 2.3% holds, is shown by the blue arrows. Observe how the stochastics (lower pane in chart) came all the way back to test the low of the January oversold extreme, at the 10% threshold, while yesterday's yield level didn't even come close to the January yield. This is bullish divergence in favor of higher yield levels in the intermediate and long term future.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.