A short-term trade is opening up in the index ETFs, and the next few sessions will be crucial. So whether you play the Spyders ( SPY) or the more active double and triple or sector ETFs like the ProShares Ultra S&P 500 ( SSO) and the ProShares Ultra Short S&P 500 ( SDS), a move seems to be brewing, and a trade is about to materialize.

There are two ways to view the recent decline in the stock market. Either this is the continuation of the bear market or the makings of a new bull market.

Let's lay out the case for both scenarios from a technical standpoint. The stock market's biggest percentage rallies were bear market rallies followed by even lower lows. The following widely published chart is very powerful and scary:

Bear Market Rallies
CQG, Inc.

The latest S&P 500 move from the March lows from 666 to an intraday high of 956 represents a 43% move that is very reminiscent of the market rallies from 1929 to 1932.

Many analysts who have been warning of just such a scenario have much fundamental support for their opinions. Whether their opinions prove correct or not, it seems the market has reached a critical point in the last two days, where the action of the next several days will determine whether we will be looking at a replay of the action we saw in 1931.

Take a look at this chart that I prepared with my own favorite technical indicators. Here's a daily S&P chart with the Bollinger bands and stochastic indicators overlaid.

Daily S&P
Daniel Dicker

We see that the downswing bars have come low enough to touch the bottom line of the lower Bollinger, in red.

In bull markets, we would expect a fairly quick bounce off of a touch of this line while in bear markets, you will see more frequent touches and some deeper penetrations of this lower barrier.

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