U.S. Stock Market – Week 22-26 October 2018

** Please note that this is NOT to be regarded as an advice or a recommendation, it is meant for EDUCATIONAL PURPOSES only.


Dow Jones Industrial Average is now supported at the blue uptrend line connecting the lows of February, March and June after falling below its red 200-day Moving Average (MA) line for the second time in the month of October. Meanwhile, the Dow Jones Transportation Average is closing in to a CRITICAL support level (red circle). The manner Dow Transports is declining is alarming for the U.S. bull market because of its economic sensitivity, it tends to do better than the Dow Industrial at market bottoms (eg. 2009), but drop faster at market tops (eg.2007). Going forward, IF Dow Industrial were to break BELOW its 24th October low (blue circle), we MAY see it decline towards the next support zone 23,500 – 24,000 (red cicle), which is approximately where the technical target its bear flag pattern is projecting.


S&P 500 staged a brief rebound and then cut below both its red 200-day MA line and the blue uptrend line connecting its February, May and recent October lows. At the same time, the percentage of S&P 500 stocks above 200-day MA has broken BELOW the important level of 40%. This means that more than 60% of the stocks in S&P 500 are now below their 200-day MA or are already in downtrend. This is worrisome because this implies that we MAY see S&P 500 experience a correction similar to what we had in 2011 and 2015 (red circles). IF the 24th October low of 2,651 were to give way, we MAY see S&P 500 decline to the next support zone 2,553 – 2,594 (red circle). This is also where the technical target of the bear flag pattern is located.


NASDAQ rebounded briefly from its recent plummet but hit resistance at the uptrend line formed connecting the lows in February and April. It then formed a bear flag pattern and continues its decline, undercutting its 200-day MA for the second time during the process. Its percentage of NASDAQ stocks above 200-day MA has broken BELOW the important level of 30%. This means that more than 70% the stocks in NASDAQ are already in downtrend and we should be prepared to see NASDAQ experience a correction similar to what we had in 2011 and 2015 (red circles). A further weakness in NASDAQ MAY result in it dropping to the next support zone 6,800 – 6,900 (red circle), where the price objective of the bear flag is targeting.


IWM (an ETF that tracks Russell 2000 small cap stocks) is now finding support at its 2nd April low of 146. Thing doesn’t look encouraging as its 20-day MA line has cut below both of its 50-day and 200-day MA lines and its 50-day MA line is also turning down towards its 200-day MA. IF this 146 support were to be broken, we can expect IWM to decline towards the 9th February low of 141 (red circle), which is also approximately where the price objective of the bear flag pattern is targeting. Going forward, it is important to watch how IWM perform. A continuous weakness in IWM will not bode well for the mid and large cap U.S. stocks because the smaller cap stocks have the tendency to lead the bigger cap stocks both up and down historically.

BILLION dollar question: is the 9-year U.S. bull market finally OVER and has the BEAR market arrived?

Based on our proprietary stock market indicator that combines Cycle Analysis (CA), Technical Analysis (TA) and Fundamental Analysis (FA), my view is that the PROBABILITY of the bear market is here is about 80%. We are NOT 100% sure yet because some of the fundamental and cyclical indicators still have NOT turned bearish just yet. We will be launching our proprietary stock market indicator on the 1st January 2019, it is PROBABLY going to be the first stock market indicator in this world that is a composite of CA, TA and FA models for a holistic dissection of the U.S. stock market. So do watch out for it!

Timing is Everything! 时机就是一切!

** Please note that this is NOT to be regarded as an advice or a recommendation, it is meant for EDUCATIONAL PURPOSES only.

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