Stock Market Update

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Today was a nice reaction rally from oversold conditions in the stock indexes.  However, the volume was a lot lower than Friday and sharp rallies like this should be expected in a downtrend, especially given the high put/call ratios recently. 

I have made a couple projections for the SPY from this level.  The blue projections would be a more dramatic but certainly not impossible waterfall decline that would be typical of a MAJOR pattern completion in the markets.  If this spring's high was the end of the bull market rally since 2009, then we should expect a larger move than any correction along the way.  So we could see a decline bigger than last summer's decline.  Obviously that seems improbable, but that would confirm a new bear market.

The green projection is what would be a very typical type of scenario before a new decline.  I have not talked about this recently but often the first support level is broken followed by an ABC type rally that retraces about 50% of the initial thrust down.  That is followed by downtrend continuation.  Should we see that scenario play out and the market remain well below this year's highs as the time of the purple box reaches its end in the first week of June, and the daily stochastics has rallied back up to overbought and then turns into a sell signal, that would be a time to short crap out of it.

The elevated put/call ratio typically leads to a multi week rally, so we may expect a more bullish near term scenario, but any push to new lows, will likely initiate a dramatic plunge lower.