The Bears Have the Football – Will They Fumble?

Good Morning:

• The market rolled over yesterday into what could develop into the 20-week cycle correction we have been anticipating.
• The rollover was confirmed by a breakout in the S&P 500’s mirrored cousin, the VIX Volatility Index. The market has consistently put in an intermediate top over the years on breakouts from the current level. This is important because we are still in a bear market until proven otherwise.
• Recall I noted the sentiment indicators were overdone on Monday, and I suggested picking up some VIX calls as they were dirt cheap.
• For now, the market looks headed to test the daily chart mean and support around 4050.
• Normally, we should see a bounce off the mean. If we don’t, that would be doubly bearish.
• And since a pivot from the mean would only be a touch of the lower, tight bull channel on the daily chart, it could keep bulls and bears guessing as to whether the bull channel will progress to the August high before the market rolls over in earnest.
• The bottom line is that we either sell rallies or buy dips. Right now, I favor the former over the latter.
• The Navigator I and II algorithms applied to the daily chart remain in sell signals from 2/2.