Signals of bear trend failure over all indices.
For the first time since the 2021 high, all indices flag bear failure patterns.
Three out of four US indices closed last week above their 76 retracements from all time high. Most often, this implies new highs will be made.
Read more about the 76 level and how it’s performed during 2022/2023 here.
All of the indices now have made breaks that are more in line with a bull move than a bear move. Here they are ranked from most bullish signal to least. We’re going to be using rules defined in the post about the 76 linked above.
Nasdaq
Nasdaq has broken the 76, hit the 86 and is in a retracement off the 86. The most common simple signal of a 76 break is it hits the 86 and retests the 76 area and then heads to a new high. These recent swings are exactly like the first swings we’d expect to see in this setup.
DJI
DJI has not triggered the fail point of the 86 yet but what makes this more suspect from a bear perspective is we’ve already had what looked like the perfect setup for the bear move. The bear move has not followed through and is instead at a new high. Not ideal for bears - bigger chance the 76 is failing.
SPX
Taken on its own, SPX is not flagging particularly bullish signals yet. This is still inside of an uncomfortable spike out. However, the Nasdaq, DJI and the previous new high analysis posted early in the year currently showing more validity than a 76 bear reversal weaken the case for the 76 reversal.
RUT
On the face of it, RUT would seem harder to make a bull case for with it being so weak. However, the RUT chart currently looks a lot like the SPX chart did around 3900. The local 76 reversal has failed multiple times and this is a big warning to bears that they are at risk of being squeezed.
When a 76 fails to be a trend continuation after a big bear leg down, I find the odds to be about 3/4 the market is going higher. We should now plan our bear break levels that annul this bullish signal and plan our different upside targets for a bull move. Much of the latter we’ve already done.
Early bull target would be around 4900 for the bat.
In this move we usually continue with overall bull momentum to 4800. Go into a bit of a chop and then spike out. The bear entry would come into the next failed new high.
These upswings I feel are where low hanging fruit bull trades would be over but there could be various types of overshoots. Often the final leg of an uptrend extends to the 161 of the last big drop. The failure to break this level is the start of the big reversal.
This can sometimes also come from the 127. Which would agree with our previous targets.
We do not have to try to work out the topping level if we can get decent long entries. Usually a squeeze will make persistent higher lows in the end, so we can just trail stops. The first highlight area is around where we’d be now and the second highlight area would be an ideal spot to pick up high RR longs.
Failure of Bull Plans
Bears should not be able to break under the highlighted zone. A 76 break will usually hold a 61 retracement when in a bull move.
Breaking under there would warrant a full review of bias and more consideration this was just a spike out.
If we have been in a spike out, the near term day to day action should be obvious weak and down trending. We can look for spots to pick up shorts intraday and trail stops if this is the case.
If we make a new high, I do not think we’re in a “New bull market”. I’ll be extremely surprised if US indices are a net bull market over the next 5-10 years. My premise with a new high thesis has always been we may not have seen the end of the current bull market.
Were it to be the case we’re about to enter into the final swing of a macro bull market, we could be looking at first a 25% spike (Relative to previous highs) and then a rapid drop of close to 50%. These would be our next monthly chart swings.
Would be really simple to trade this if you were ready for it. While it may look like an unlikely forecast - history may have left clues.
For more analysis on how a big trend usually tops, see: Bears didn't do it. I think 5300 is next target. (substack.com)
We’ll send out more detailed trade plans for bull/bears breaks in indices to subs over the coming days, along with updated analysis on currencies and some thoughts on where the highest risk:reward opportunities are in the next big swings.