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Has the Stock Market Bear Returned?

Stock-Markets / Stocks Bear Market Nov 20, 2011 - 06:43 AM GMT

By: Toby_Connor

Stock-Markets

Best Financial Markets Analysis ArticleThe recent market action has me wondering if the next leg down in the cyclical bear market has begun.

I always expected that we would see a very convincing rally out of the October yearly cycle low. I thought it even possible that we would test the 200 day moving average. Most bear markets do rally out of the initial leg down and test the 200 day moving average.


SPX

Recently the S&P made two attempts to close and hold above the 200 day moving average. They both failed. That was a loudly ringing warning bell.

SPX

As a matter fact every index, except the utilities, is now trading below its declining 200 day moving average, and that includes all the major European and Asian markets.

At the moment my concern is that the market is now moving into the timing band for a major daily cycle low (due in the next 5 to 10 days). The current daily cycle is left translated (topped in less than 20 days). That is relevant because most of the time left translated cycles move below their prior cycle bottom. The last cycle low occurred in October at 1075.

Now I'm not suggesting that the stock market is going to crash below 1075 in the next 5 to 7 days. However the S&P has broken below the 1220 support zone. When support was broken in July it led to a seven-day 17% crash.

SPX

I don't know if the breaking of support this time will lead to another climax selling event or not. I do know that the market is now in the timing band for some serious selling. And, this is beginning to look like a counter trend rally in a bear market that is in the process of topping. If that's true then we are in the period of time when the next leg down should begin.

Confirming this is the fact that the dollar index has rallied back above its 200 day moving average and completed an intermediate cycle bottom. The dollar index is currently on only the third week of this new intermediate cycle. Those cycles tend to run about 20 weeks, so there is potentially many more weeks of upside left before the dollar moves down into another significant correction, which presumably would drive the next bear market rally in stocks.

The safest position at this time is to be in cash, and that's exactly what I did with the model portfolio yesterday morning.

Click here to go to the premium website then click on the subscribe link on the right-hand side of the page. You will see the special offer at the bottom of the subscription page.

    Toby Connor
    Gold Scents  

    GoldScents is a financial blog focused on the analysis of the stock market and the secular gold bull market.   Subscriptions to the premium service includes a daily and weekend market update emailed to subscribers.  If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions,email Toby.

    © 2011 Copyright Toby Connor - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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