For the first time since 10/2/2015, there has been some notable weakness in the market. A pullback after such a huge run is completely normal occurrence; but it would be helpful to have the correct interpretation of the market thus far. Meaning this: bull scenario is that the more than 10% correction has finally happened, the low has tested and held on most indexes, and now the market has made a decent recovery and could see new highs by the end of the year. Conversely, the bear scenario is that while strong this bounce from 10/2-12 while strong was part of a larger down move. So, bull or bear?
First the main USA indexes (I am using ETFs for ease):
SPY above YP, Q4P, OctP; fell back under MR1 along with ES Z5 futs (both despite SPX holding onto MR1 at the close). Overall a bit weaker, but still largely bullish esp above YP 197.40 & Q4P 195.73
QQQ above YP 97.59, slightly above 2HP 105.86, above Q4P 100.29 & MP 103.07; rejected from MR1 107.40 today. Overall very bullish since above all pivots (not so many asset classes currently qualify); needs to hold 2HP to keep this designation.
DIA fraction above YP 170.57 after looking more positively above it for 2 days; still well above Q4P 164.81 and MP 163.74. Watch the DIA YP!
IWM spent 3 days above the YP 114.85 / Q4P 114.31 combo, but today got rejected from MR1 116.39 and fell below both of the larger levels. This was a bearish development.
So from here, QQQ 2HP, DIA YP and IWM Q4P are levels to watch.
Second, risk: TLT could have broken down but didn't. It only spent 1 day below the Q4P 122.61 / MP 122.12 support area on 10/8; recovered MP 10/9; jumped back above Q4P 10/12; and is now only pennies from reclaiming 2HP 123.61! This would be a big deal since there are not that many assets classes currently above all pivots.
In fact, an easy bull / bear scenario from here would be to watch 2HPs on TLT and QQQ, along with the YP on DIA. If TLT recovers 2HP as QQQ rejects, that's bearish - because at that point TLT will be above all pivots and QQQ will lose that status. Obviously, the converse is also true; if QQQ holds 2HP and TLT rejects, then the stronger bull case remains. Probably DIA will move in the similar bullish / bearish direction as these two.
Third, supporting index ETFs. As markets pushed up into the 10/9-13 high area, both XLF and SOXX approached their YPs at 23.45 and 86.21 respectively. Unlike DIA and IWM, however, they did not clear; ie, the YPs were resistance. Both XLF and SOXX are related to the larger issue of growth in the economy. Combined with TLT strength, fundamental issues are clearly putting a brake on the rally.