My weekend message showed the Dow Industrials testing important chart support along its late 2018 low. The weekly bars in Chart 1 show the Dow falling below that important support line this week. That raises the likelihood of even lower prices. The question is how low. The best way to determine the next potential downside target is to look at previous corrections/or consolidation patterns for potential support. And that would be the corrective period between 2015 and early 2016 marked by the two lower green horizontal lines. The upper line marks the top of that period near 18,350. The lower line marks the corrective bottom near 15,400. Those two potential support levels also make sense from a long-range perspective as shown in the next chart.

The monthly bars in Chart 2 show those potential support levels in Chart 1 corresponding closely with 50% and 62% Fibonnaci retracements of the eleven-year bull market. Retracements of that size aren't unusual during bear markets. Chart 2 also shows the Dow falling below its major support line extending back to 2009 (red line). That also increases the technical odds for lower prices.

Chart 1

Chart 2

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Editor's Note: This is an excerpt of an article that was originally published in John Murphy's Market Message on Wednesday, March 18th at 5:16pm ET. Click here to read the full article, which includes Chart 3 and an analysis of the S&P 500.

The broad market environment is bearish and volatility remains high, even with stock alternatives, such as gold and bonds. This is hardly a conducive environment for trading or investing, but there are alternatives, such as a bear market project. This can be remodeling a room, finally clearing out the garage or preparing for the next bull market through education. With the latter in mind, I created the Essential Breadth Indicator ChartList.

While the price of an index reflects what is happening on the outside, breadth indicators show us what is happening on the inside, and we all know that inside information can provide an edge. Since we are all not Senators, we must use charts to find that edge.

Breadth indicators are also referred to as market internals. As the "vital signs" for an index or sector, breadth indicators reflect aggregate performance for the individual components. As such, breadth indicators can provide leading signals by strengthening before a bottom or weakening ahead of a top. After all, the whole is only as good as the sum of the parts.

A bull market needs leaders and stocks making 52-week highs are leaders. Not every stock needs to hit a 52-week high to support a bull market, but a certain percentage is required to validate upside leadership.

High-Low Percent is calculated just like Advance-Decline Percent: new 52-week highs less new 52-week lows divided by total issues. The indicator is positive when new highs are greater than new lows and negative otherwise. The chart below shows new highs and lows in the middle window and High-Low Percent in the lower window.

I consider High-Low Percent bullish when it exceeds +10%. This suggests that enough stocks are recording new highs to support a bull market. Even though this indicator can dip into negative territory after a bullish signal, it does not turn bearish until there is a move below -10%. Such a move means new lows have expanded enough to justify a bear market environment.

As the chart above shows, this indicator trigger bearish on 11-Oct-2018, bullish on 15-Feb-2019 and bearish on 27-Feb-2020. The indicator continued lower here in March and clearly has some value when it comes to timing the broader market.

The chart above and more than 100 others are included in Essential Breadth Indicator ChartList, which is available to TrendInvestorPro subscribers. There are customized breadth charts for the S&P 500, S&P MidCap 400, S&P SmallCap 600, Nasdaq 100, 11 Sector SPDRs and Gold Miners ETF. Note that you also need to be a subscriber to StockChart to access the list. There is also a detailed article explaining the signals and settings for the 13 base indicators, and there will be videos next week. Click the link below to see a full list of available charts.

Click here to take your analysis process to the next level!

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We have now been in the downtrend for one month. The January 19th intraday high (3393) on the SPX is in the books for a little bit as the high, much like 1576 was from 2009. With this week's low, we have moved down to a 50% retracement from the gains after breaking above 2007. That can be seen using the red fibonacci retracement lines.

The black fibonacci retracement lines show we dipped a little lower than the 38% retracement measuring from the 2009 lows.

There are some other interesting facts about the moves we are experiencing.

Some stats:

• The swing in the SPX today between 11am to 1pm was 100 points.
• The range (from high to low) of the day was 158 points.
• In comparison, the big up month of January had a total range of 123 points on the S&P 500.
• February rallied hard for a total of 168 points from the close of January to the February high.

For the road down:

• The total range from the high in February to the end of the month the decline was 532 points.
• In March, down 581 so far.
• Down 1113 points in total.

Some stats for this week:

• The range for the SPX yesterday was 146 points and yesterday was a "calm" day relative to the rest of the week.
• The intraday range for Wednesday was 170 or more than the upthrust in the first three weeks of February.
• The swing from Wednesday's high to Thursdays low was 270.
• The swing from the Friday, March 13th closing high to Monday's low was 330 points.

The entire month of January was -6 points from Dec 31, 2019 close to the January 31, 2020 close. Again, the total January range was 125 points.

All that to say, the volatility will shake your core. Below is the $VIX with the pinnacle at 85. That rarely lasts. It does not mean the market will go up as the $VIX falls, but you might get a bear market rally. Even though the $VIX moved Dow from 85 to the high 50s today, we didn't even take out yesterday's high.

For more ideas about this market, I would encourage you to watch the Market Buzz video series.

4 Stops Is Not A Start

Stay cautious!

First and foremost, a message to my readership: I hope you are staying safe and healthy during these difficult and unsettling times.

COVID-19 is wreaking havoc on our lives, our families, our jobs and the markets. I ask you all to be mindful of the older generation amongst us — those who are fragile in health and cloistered in less than ideal situations. We're all anxious for quarantines to be lifted, restaurants to reopen and normal life to return. But that day seems long in coming right now. We have no choice but to move forward in spite of the chaos that surrounds us all.

Perhaps 2020 will be remembered as the year of the great American Investor Quarantine. Having said that, I think it's important for us to distinguish between cloistered versus quarantined. To a large degree, how you choose to look at yourself right now is a matter of personal outlook and choice. It's a good time to remember the old adage of making lemonade out of lemons.

My best advice right now is to stay put. Chill out. Be positive. Be productive. Learn a new hobby. Grow a beard (well okay, not you ladies). This contagion and the resulting crisis will indeed pass. In the meantime, you need to adapt to the new reality.

Here are my 10 steps to surviving this current version of a "zombie apocalypse" — my suggestions for maintaining your psychological, physical and financial well-being until a healthy planet Earth returns. Hopefully, it means investing one dollar now and getting ten back later.

1

Social isolation can be unhealthy, but we're all fortunate to have an authentic spirit of camaraderie within our investment community. Reach out to your friends and investment acquaintances. Pick up the phone. Email and FaceTime with others. Have a video conference on Zoom. Start an online investment group to discuss the markets and give your group an appropriate name like "Socially Distanced Investors". And keep washing those hands for at least 20 seconds!

2

Now would be a great time to revisit the boundaries you have set for balancing your home life with work life and investor life. Don't let yourself shift disproportionately over to work life. Keep a healthy outlook and balance in all aspects of your day-to-day being.

3

Do something nice for yourself at the end of each day. I just went to a seminar by an emergency room doctor who presented both medical and academic studies that prove definitively that meditation once a day makes your brain work better as well as increasing your longevity. The statistics he presented are very convincing.

4

Take this time to read a good investment book. Here are a few suggestions.

5

These are trying times indeed. The present realities demand that prudent individuals revisit, re-evaluate and possibly adjust their personal household budgets. Minimizing your debt and reviewing your emergency savings would be at the top of my list.

6

During stressful times, I've found that dissecting my asset allocation buckets with a fine-toothed comb makes me queasy, but a stress test during bull markets is a somewhat artificial fairytale endeavor. Your portfolio's strengths and weaknesses are now laid bare. As Warren Buffett says, Personally, I find Morningstar's X-Ray tool a perfect companion in this exercise.

7

Re-read your personal trader's journal. Have you been keeping one? If not, no worries. You can always read through the archives of our Traders Journal Blog here on StockCharts. Spending some time with your "Investor Self" during bear markets provides useful insights to learn new ways of moving forward.

8

Have some fun! Explore tools and resources on StockCharts.com that you may have overlooked or forgotten about. Here are some I suggest among many others:

• Symbol Summary
• Predefined Scans 
• ChartStyles and Style Buttons
• Seasonality Charts
• Historical Chart Gallery

9

Good routines increase the probability of profits. Great routines print profits. Your ChartLists are the foundation of your routines. They have an immense impact on six of the ten stages in our Tensile Trading book. Now is a perfect time to review all your ChartLists to consider how you structure them, how you populated them and how you use them. Here are my own ChartLists all pre-populated.

10

How did your buying methodology and sell disciplines hold up to this unprecedented "stress test"? Can you be brutally honest with yourself about the bull market ride and the bucking bronco they're now calling a bear market? Remember what Darwin discovered. It wasn't the strongest or the smartest of a species that survived. It was those that adapted and changed that survived and prospered.

 

In closing, I hope you'll remain positive in these tension-filled times. A few "don't dos" may be worth repeating. Don't forget to eat healthy, exercise and keep your immune system firing on all cylinders. Don't buy into the predictions of a global meltdown and extinction event. Don't let the doomsaying mess with your psyche. And finally, don't be short-tempered with your pets or your significant others. We're all in this together!

The bottom line? This danger, like so many before, will come to pass in the end. We'll grieve our losses, dream of new beginnings, and learn new ways to live our lives and heal our Earth. Optimists are the ones who always prosper.

 

Trade well; trade with discipline!

- Gatis Roze, MBA, CMT

StockMarketMastery.com

• Author, "Tensile Trading: The 10 Essential Stages of Stock Market Mastery" (Wiley, 2016)
• Presenter of the best-selling "Tensile Trading" DVD seminar
• Presenter of the "How to Master Your Asset Allocation Profile DVD" seminar
• Developer of the Tensile Trading ChartPack for StockCharts members

I'm so excited to report sentiment to you this weekend with commentary added from Mark Young of WallStreetSentiment.com. We are seeing extraordinarily high bearish sentiment on most of our charts; however, I don't think we are bearish enough based on extremes we've previously seen.

Let's start with the Rydex Ratio chart, which is an exclusive DecisionPoint indicator. We measure the assets in bull and sector funds in comparison to the assets of the bear funds and money market funds. The ratio has hit levels we have not seen since the 2018 low, so it does imply we could see a reversal once the ratio begins to form a strong bottom.

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As investors, we want to accomplish two basic things: (1) determine the trend and condition of the market and (2) select stocks that will ride that tide. The DecisionPoint Alert helps with the first step; DecisionPoint Diamonds helps with the second. Go to DecisionPoint.com and SUBSCRIBE TODAY! 

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The put/call ratios are very stretched out into oversold territory. We aren't seeing them turn up yet, but when they do, that could signal a true bear market bottom.

The exposure levels of the Association of Active Investment Managers are very low. We are reaching levels that could point to a market bottom soon.

Here are Mark Young's comments on his Wall Street Sentiment Survey results:

"Last week, the Wall Street Sentiment Surveyees were just slightly Bearish at 38% Bears and 31% Bulls. That was mildly Bearish near-term. Of greater interest is the reading 5 bars ago, when Bears were a 69% and Bulls were at just 6%. This was right before the current Bear hit. We have often noted that this crew is very often right (80% of the time since 2015) when there is a strong plurality of Bears, and, in fact, this crew is generally more likely to be right on the course of the market than wrong, most times. We don't have this week's data yet (it will be posted Sunday night here: http://schrts.co/iYEKbnCX ), but bottom pickers will want to see either a lot of Bulls (which is Bullish) or a dead even split (correlated with turning points)."

Here are his comments on his VIX chart. I agree with him that readings are certainly very bearish as far as sentiment and, as he said, that is generally bullish for the market. The heartburn is that, with numbers this high, we can't count on them as signals for a bullish reversal.

"The ugliness of the recent decline has generated considerable bullish intermediate-term sentiment for the market. Most notable is the Relative VIX at record high levels. This indicator is a gold standard bottom spotter, measuring deviations of implied volatility (options premiums) vs. the norm - in my view, a high Relative VIX represents 'incentive' for a rally. Premiums are so high now that a large buyer might amply improve his returns by shorting puts or the VIX itself and launch a significant buy program. Stranger things have happened. I can only view such high readings from this indicator as Bullish."

I love Mark's next chart. It's a very ingenious measure of sentiment! Here are his comments:

"Another indicator of excessive Bearishness is accumulated net new shorting via the SH (the ProShares inverse S&P 500 ETF). If there is excess demand for this ETF, rather than allow it to trade at a premium, sponsors will issue more shares. We measure this share issuance. The SH reported $161MM in new shorting on Thursday. Over the past 7 days, there has been $467MM in net new shorting and over the last 21-days there has been $647MM in net new shorting. This is very high all around and a very solid Buy. This is at levels that supported substantial, multi-week rallies in the past."

Finally, let's take a look at the American Association of Individual Investors' Poll. I believe we are NOT seeing enough bearish activity here to imply a bear market low. You can see the ratio, while oversold, is not as low as we have seen it. Here are Mark's comments:

"Overall these indicators suggest that a large rally is looming near-term. The one fly in the ointment is the AAII Sentiment. Despite the alarming weakness in global markets, AAII Bulls actually rose to 34.4%, taking this indicator out of Buy territory. That isn't what we would like to see. On the other hand, the AAII pollees have often gotten as Bullish as this or more so right off the low, so this reading is not enough by itself to preclude a good rally. It does, however, imply to me that we may have more weakness after a good bounce."

Conclusion: I hope you enjoyed this "dual" sentiment report! Mark and I are working on putting together a regular sentiment report that we can offer to our subscribers. I'll keep you posted! Overall, we are seeing the bearish oversold readings we want, but, as we keep saying, "This bear market is different." With so much still unknown on the effects of the coronavirus on our economy in the intermediate term, I don't expect to see this bear market reverse.

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Technical Analysis is a windsock, not a crystal ball.

Happy Charting! - Erin

Email: erin@decisionpoint.com

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If the coronavirus permits, Erin Swenlin will be presenting at the The MoneyShow Las Vegas May 11-13, 2020! You'll have an opportunity to meet Erin and discuss the latest DecisionPoint news and Diamond Scans. Claim your FREE pass here! You can watch online with this pass too!!

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Helpful DecisionPoint Links (Can Be Found on DecisionPoint.com Links Page):

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Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

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Generally, my articles focus on corporate earnings. But let's face it - earnings have taken a back seat these days, with traders more in survival mode. How volatile has it gotten out there and how worried are investors? Well, just take a look at the chart on the VIX below, which paints quite a picture.

Of course, what stands out is that the VIX has only been at the level it was during this past week one other time in history, which is during the Great Recession, when everything was in flux. That's rare air.

One of the most amazing things to think about is that the S&P hit its all time high just one month ago, yet now NO ONE wants to touch stocks. Compare that to what we saw for years during the bull market going back to the S&P bottom in March 2009, where traders were salivating all over pullbacks, with virtually every one being seen as a prime buying opportunity. Now? HEAVY selling on ANY rally - though there haven't been many - with great hesitation to put money to work on any dips.

All of this adding up to the necessity to design a new Trading Playbook. And this is why we've decided to conduct a webinar today, Saturday, March 21, where EarningsBeats.com Chief Market Strategist Tom Bowley will focus on "Changing Strategies in a Changing Market." This is a VERY timely event and we'd love for you to join us - and you won't have to leave your home! Just click here to learn more and save a seat.

 

At your service,

John Hopkins

EarningsBeats.com