Has the unexpected sell-off in equities changed the overall market outlook? Ron Meisels, President of independent research house Phases & Cycles, admits to being surprised by the degree and breadth of this month’s decline, but thinks “the jury is still out as to whether the bearish forces have completely turned the overall market tide.”
For the S&P 500, Meisels says the picture is complicated. Key supports at the 1860/1870 level were taken out and the October 2014 low at 1821 was broken on an intra-day basis last Wednesday. This all supports the bear case, he says, “until we pull back a little and look at the entire bull market.”
Meisels observes that the overall 15% decline from the May 2015 peak has taken the S&P 500 back towards the major trendline which began in 2009, and that line is still intact. This trendline support, currently at 1800, is “the very last defence of a bull market whose defences are weakening.”
Meisels also points to several breadth and sentiment measures that suggest US equities are extremely oversold, although some are not yet at climactic levels and Meisels thinks this means the corrective pattern still needs more time to complete.
Meisels concludes by saying the bears have succeeded in turning the market dynamic upside down. “Buy the dips” has been replaced by “sell the rallies”, but he does not yet think it’s a time for panic. “The bull’s situation is precarious but they deserve once last chance to make a stand.”
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