The Dow Industrials are in outright trend sell-mode, with the S&P500 in the chart below about to make the same bear turn. The indexes are following the crash path set-up near perfectly, and the danger for the bulls is approaching extreme levels.
My "Danger, Will Robinson, danger" call from Monday proved spot on, and the breakdown yesterday is likely the start of something bad, not the end.
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On the politial front, the October 17 deadline will likely pass without any deal, and the financial markets are not going to like that one bit. The reason for no deal is the two sides broke apart in 2011 re the grand bargain because the democrats refused to cut entitlement spending in any meaningful way. This time around there isn't even any negotiation, let alone meaningful talk headed in the right direction. The markets are praying - begging! - for the two sides to start to work on a deal. And while we may see that happen, the probability the democrats and republicans come to an agreement on major spending cuts before October 17 is zero, thus expect the stalemate to continue past the deadline, and until some significant crises lands to change the democrats minds.
The chart below shows the recent red circle sell event moving perfectly in-line with expectations. The pattern count has us in the wave iii mini crash position. The breakdown yesterday changes the game for the bulls. Now they want out. There are two ways this can happen. The market repeats what happened in 2011 and tanks without offering bulls a way out, nor bears a way in. The other is the market receives some perceived good news and the market enjoys a rally that alleviates the short term oversold condition. Then the big money wanting out will sell hard into the good news, just as they did on the rally pop post FED "no taper" surprise, which lasted all of one day.
Once this sell-wave ends I will be an eager buyer, though an outright crash will remain very much on the table until the stock market becomes oversold on a longer term basis (as tracked by the yellow line in the top portion of chart below.)
The potential for swing traders to profit on the remainder of 2013 is huge, while buy and hold bulls are likely in for a lost decade of steep losses.
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Disclosure: I am long PSQ.