Green Shoots Rally Is Coming to an End

On Monday, the S&P 500 and Dow Jones Industrials both went to "sell" signals using Point and Figure Charting methodology.

Chart courtesy of StockCharts.com

In the chart above, you can see that a double bottom breakdown occurred yesterday, July 6th, and this helps to confirm our "Red Flag Flying" mode to expect lower prices ahead. You can see the preliminary bearish price objective as 835 and the blue line, which if crossed, would represent a primary trend change to a new leg down in the bear market.

So, why is the "green shoots" rally coming to an end?

In a word J-O-B-S.

Chart courtesy of Chart of the Day

The chart above says it all: job losses compared to average recessions since 1954 have been far deeper and faster than anything we've seen in this time period. Furthermore, after 18 months into this, we see no signs of a turn upwards, unlike in the historical averages.

So, what can we expect ahead?

890 on the S&P is crucial support. A break below here would make 830 a realistic possibility. A break below 830 would set up a retest of the March lows, which, by the way, would not be unexpected at the end of a bear market rally.

We will continue to maintain our inverse positions and add to them if this correction receives further confirmation.

Everyone wants this to be over, but all indications point to the conclusion that we have a way to go before we can pronounce ourselves clear of "The Great Recession."

Disclosure: RWM, DXD, SEF

Comments

[Roger Knights:]

"890 on the S&P is crucial support."

OBE: Make that "was."

Jul 08 04:55 AM

[ain't no fo...:]

My charts suggest a break of 875 SPX sets up target of 825 support, that would coincide with INDU at 7850 level.

Many indices, etf's and individual stocks are already rolling over hard, momentum oscillators are breaking down, and it would appear the overall market is set up for significant weakness going forward.

Jul 08 08:35 AM

[jeandit75:]

all of those support targets have to assume no other major systemic risks events and there are multiples waiting to happen: CA bankruptcy, commercial real estate crash, morgage reset accelerating foreclosure and toxic asset on bank's balance sheets (or should we say unbalanced sheets), further banks fallouts, etc.

Jul 08 09:38 AM

[ain't no fo...:]

agreed, my targets are preliminaries... I think odds favor an '87 style event late summer/early Fall, there are just too many holes in the dike, and structural defects in the major markets


On Jul 08 09:38 AM jeandit75 wrote:

> all of those support targets have to assume no other major systemic
> risks events and there are multiples waiting to happen: CA bankruptcy,
> commercial real estate crash, morgage reset accelerating foreclosure
> and toxic asset on bank's balance sheets (or should we say unbalanced
> sheets), further banks fallouts, etc.

Jul 08 10:28 AM

[Ryu Mei Co:]

Well, the bear rally was extremely fast and high, thus, it wouldn't be a surprise that most who profited are selling off to take profit. While those are on the side, remains to be bearish.......

Jul 08 08:56 PM