10/14/2011 Market Outlook (Down then Up?)

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First of all, take a time to vote our new poll, maybe you have a 3rd thought now? It’s interesting to see how sentiment shifts as the market unfolds, if you compare the poll 1 with the poll 2. Let’s see if the market has now convinced most of us.

Three cents:

  1. Expect a sharp pullback as early as the next Monday, no later than Thursday. My guess is Tuesday because Tuesday is famous for “turnaround Tuesday”. Such a pullback more likely is short-term in nature.
  2. A little bit bigger picture, after the pullback, we should see multiple weeks rally.
  3. The big picture, after multiple weeks rally, SPX would down to around 1,000 at least.

The chart below shows the road map as mentioned above. It basically reiterated the Route A mentioned in the 10/07 Market Outlook, that we’ll see a sharp pullback the next week, but such a pullback most likely is buy. Some people asked me about the final rebound target, my answer has been, I need see a chart pattern. The chart below also explained my answer, I need a pullback before applying the Measured Move to know the final target.


OK, now let me try to talk you into believing why we’d see a sharp pullback the next week.

NYMO is way too high. This is the major reason that I believe we’d see a sharp pullback the next week. The signal had no exception in the past.


I want to remind you how important the position the market is at now where bears have multiple defences:

  1. The price is testing perhaps the most important weekly MA.
  2. Fib 61.8% and Fib 50% confluences area.
  3. It’s been the major battle field between bulls and bears for the past 14 years.

Without taking even a tiny little breath, bulls travelled so long to challenge such an important point, with NYMO extremely overbought, so really, it needs lots of imagination to believe bulls can easily take out the resistances without any fights. More likely, in this case, a breakout, even if indeed, would be a head fake.


The chart below also argues that bulls have exhausted all the forces (before such an important challenge), as MACD Hist is way too high now. Let’s allow 3 more days up for it to reach 10 years high which means the price could be up to Wednesday and this is why I said no later than Thursday, we’ll see pullbacks.


The two charts below are arguing for a pullback no later than Tuesday. They both went wrong twice in a row recently, so maybe nobody believe them anymore. But it was in the 7 Days Rule period, during which time, nothing bearish ever worked. Now the bulls best 7 days have passed, the question is: Will those bearish signals start working again? And will the 3rd time be the charm? After all, both had over 70% winning rate in the past.


The last chart does not count as evidence for the coming pullback because the sample size is too small. I just want you to know that VIX down 9 consecutive days only happened 3 times in the past 10 years with no single case that it dropped 10 consecutive days.



For the intermediate-term, I believe we’d see multiple weeks rally, but eventually SPX would drop to around 1,000 at least. For why SPX would eventually drop to around 1,000, I only have some very subtle evidences, so I’d prefer to blah blah later when I have more evidences. For now, it’s enough to know that more likely we’d see multiple weeks rally.

The chart below is the major reason why I think we’d see multiple weeks rally:

  1. Selling Climax itself had 63% chances led to a rally that could last more than 2 weeks.
  2. What we have now is the 2nd Selling Climax therefore much better chances of more than 2 weeks rally. This, by the way, conforms my favourite 3 push down pattern.
  3. Even in the worst case that the rally was over this Friday, from what happened in the past (red cycles), looks like at least the Friday’s high would be revisited several times, so bulls should have enough time to escape unharmed.


For why SPX downside target at 1,000, please see 08/19 Market Outlook and 09/30 Market Outlook for details.


According to Stock Trader’s Almanac:

  1. Monday before October expiration, Dow up 25 of 30.
  2. October expiration day, Dow down 5 straight and 6 of last 7.

See 09/30 Market Outlook for October day to day seasonality chart.

Long-term 3 of 3 SELL
Intermediate 3 of 5 BUY 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in BUY mode.
Short-term UP 5 of 6NEUTRAL
* = New update.



Chinese Transcript



  1. 短期会有sharp pullback,最快周一,最迟周四,我猜是周二,因为周二是著名的turnaround Tuesday。
  2. 大点的方向是向上,应该是有好几周的上涨。
  3. 再大大点的方向,就是SPX 1,000最终还是要去的。

下面的图示意了上述的走势,基本上还是10/07 Market Outlook里提到的Route A的走法,下周应该会有sharp pullback,但这个pullback是买。很多同学问我反弹的目标,我一直回答是要等个pattern出来后才能知道,下面的图也解释了这个回答,Measured Move是要在pullback完成后才能知道target的。


OK,现在来论证为什么下周会有sharp pullback。

NYMO太高了,这个是我认为会有sharp pullback的主要理由,没有例外



  1. 重要的weekly MA
  2. Fib 61.8% and Fib 50% confluences area。
  3. 历史上在这里反复拉锯无数次了。

牛牛一口气拉到目前这么重要的位置,在NYMO极度超买的情况下就想一下子冲过,大概需要点想象力,既使短暂冲过多半也是head fake。


下面的图再次说明牛牛已经是强弩之末了,MACD Hist太高,momentum再强也总有个极限,就算这次能达到10年high,因此再涨三天吧,这也是为什么我说最迟周四会有回调的原因。


再下面的两个证据都是说最迟周二要跌,这两证据最近连错两次,可能已经没有人信了。不过,出错的两次是在7 Days Rule期间,这段时间任何bearish信号都不工作,现在7天过了,是不是就会工作了呢?毕竟他们过去的胜率还是在70%以上呢。







  1. Selling Climax本身就有63%的机会意味着2周以上的上涨。
  2. 我们现在是第二个Selling Climax,因此上涨超过两周的机率更大,这个,顺便说,符合我经常提的3 push down pattern。
  3. 既使最终证明rally已经于本周五结束,从过去的情况看(红圈圈),本周五的high至少会被测试几次的,因此牛牛有足够的时间全身而退。


For why SPX downside target at 1,000, please see 08/19 Market Outlook and 09/30 Market Outlook for details.


According to Stock Trader’s Almanac:

  1. Monday before October expiration, Dow up 25 of 30.
  2. October expiration day, Dow down 5 straight and 6 of last 7.

See 09/30 Market Outlook for October day to day seasonality chart.

Long-term 3 of 3 SELL
Intermediate 3 of 5 BUY 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in BUY mode.
Short-term UP 5 of 6NEUTRAL
* = New update.
  • hey cobra . you are the man. I believe 100 % that we are going to  see highs ( now that they coincide with earnings ) and then a pullback. 
    I was waiting for this confirmation. Thank you for your hard work   I voted that the lows were in the first time but because I believe we were rallying up like we did, but I knew it was short lived and it will so if I vote again for that we are going to see a low. maybe when you ask you can put ” within the next week”  or withing the next month. cause this way i could have told you that withing the next two weeks for sure the lows but later on no way. so 
    anyway just to tell you I dont know what I would do with out you . all the best ! AWSOME work. Andy Z . is the man too . graciela  aka grachu

    • Thanks. But the poll asks whether the Oct low was the low, I think you don’t believe such a low would be broken before the end of Oct, do you? So no matter what, you’d vote “yes, the low was in”, right. 🙂

      • oh yea I see what you mean  .yea I voted correct. that the OCT lows were the oct lows. you are right . 

  • Sunhwa Lee

    Hi Cobra,

    Thank you for the great posting. I totally agree with you. This could be the mother of all rally. But May I ask what is your target to downside this time?

    • Wow, you caught me again, I don’t know. I just expect 1 to 2 days sharp pullback, may be 3% in total?

  • Anonymous

    UUP also looks like retesting the break out range, which implies a possible rebound. This also lines up with the pull back projection.

  • Anonymous


  • Anonymous

    Thanks Cobra, great work as always

  • Anonymous

    Thanks Cobra.

    I did vote and at that was 16 vs. 19 now is 28 vs. 20 (I expected).
    At this point, I really guess, time is due for a correction. since most
    of bears are turned into bulls. when bears getting less and less, the
    bull market ends.

  • Cobra, excellent report. Very reasonable technical view of the current environment. I agree, we should see a sharp pullback soon, then a multiweek rally. After the rally, to borrow a reference from “The Terminator”, the bears will be back, baby!!!!!!!! LOL

  • Anonymous

    Thanks.  Great report.

  • Anonymous

    SPX is at a critical level, so critical there may not be much consolidation at all. It’s time for both sides (bulls and bears) to go all in. A straight line will push the other side no choice but surrender.

  • Anonymous

    Just a reminder:

    Re: 10/11/2011 Intraday Watering

    by Cobra » Tue Oct 11, 2011 11:34 am

  • Anonymous


  • Anonymous

    i circled some dips,
    wish i had forcasting abilities…
    anybody think the dip in the real 10 yr tresury foretells the S&P future????

  • My take on things is not dissimilar to yours Cobra and although a pull back is likely as you point out, I’m not quite sure where this pull back will come from so my outlook is more aimed at the final picture of this rally.

    My analysis just so happens to be based around INDU, but most Indices should move the same. Note that my analysis always works around the 24 hour chart, not just the cash chart, so my MA’s may be in different places to the cash chart.

    DOW Looks pretty bullish and has done through most of this recent leg up. Daily 100 MA is currently being tested but historically it’s unlikely that this alone is enough to reject a DOW rally. Therefore I’m interested in seeing 11,750 pretty imminently and ultimately a visit to 11,910 – 12,000 seems likely. The Weekly candle closed right at the Weekly 20MA so this could potentially be resistance. There are a few options I’m looking at for trading DOW over the coming week and most include a higher high but I still see a lesser possibility of the rally continuing in the early part of the week but the weekly candle ultimately closing red. Definitely one to guage intraday if you are not already positioned on the long side.Remain aware that there is a futures gap at 11,134 and it’s almost without doubt that this will eventually get filled, just as the 10,461 gap from 2010 got filled during after hours in August, and then filled “again” during cash on 4th October.DOW is very trade-able at the moment so don’t be afraid to ignore the state of the world economy and confidently trade the long side as the technical signals reveal themeselves.



  • HighRev

    Great long term horizontal S/R you point out on the SPX. I think we’ve got double bottom chart patterns (of various types) to work with, and the neckline on the SPX is right smack dab where your long term S/R is. That’s going to be a big level, and if the bulls can power through early in the week, then the pullback might come later in the week as you mentioned, but it might come from much higher levels than any of us now might expect.

    I did another video this week as a follow-up to last week’s video on the Dow extending the same analysis to other markets and adding a couple of new things as well. http://www.youtube.com/watch?v=r0vq1YTadGs

  • Ben_Bernanke

    I don’t understand why 1,000 is still the assumed target. I went back and looked at Cobra’s posts where he made the argument for 1,000. He made the argument for 1,000 within 1 to 2 months because that’s what the statistic suggested in terms of price and time. Both failed, so why is the forecast still given? I am expecting more consolidation around 1270. Will the bulls fumble there and lose the recent lows? I doubt it. The up move has been too sharp to fail on a re-test. However, there could be a sharper pullback that lasts a few weeks, potentially even a re-test of the 1100-1200 range like in 2002, in November. The sentiment measures are just like that timeframe as well. The risk is that the retracement won’t be that sharp and people will miss another one of the “once in a lifetime” kind of rallies we’ve been experiencing for several years now.

    • the purpose is just to make sure everyone knows that my longer term view is down. 

  • Anonymous


    Thanks for the great report again. Your analysis matches well with the latest wave 2 count. I was dead wrong last time, and got out of my shorts pretty hurt. I was able to recover much by going long.

    I am front running the market again and went short in AH on Friday. Let’s see again.

    And what is your take on AAPL now, as the predicted rebound occurred?

    Good luck

    • AAPL: Up then down. I’ll post something no later than AAPL ER.

  • Ben_Bernanke

    Operation Twist 2 week cumulative results

    NDX +10.65%
    SPX +8.1%
    Dow +6.62%

    I guess people still feel they can fight Ben Bernanke and win. Interesting. FYI: This program is just getting started.

    • We’ll see if Ben can save the world. Don’t forget we’re still pretty much around where QE2 started.

      • HighRev

        I don’t think it’s any longer about Ben. And Operation Twist? I don’t think so either.

        It’s all about what’s ALREADY been done from 2009 to June 2011. That was a major expansion in the Fed’s balance sheet, or money supply as it were. That takes time to work into the real economy. It takes time for the initial imbalances to play out like the early carry trade that no longer is (and, therefore, the banks now have to make real loans once again). The real economy doesn’t turn on a dime like the markets can.

        IMHO, it’s all about the real economy once again “getting a bid”. And productive assets will outperform passive assets in the current environment. And large caps more so than small caps. Fundamentals on the individual company level will once again matter. Where all ships rise in a rising tide first leg environment, the latter stages are more a stock picker’s market. I believe that’s where we are in equities at this time.

        I think we still will see yet one more (if not two) intermediate term pushes higher (that may, or may not, break to new highs, depending on the index) where commodities actually move into an intermediate term bear market, small caps underperform, the NYAD finally diverges, etc., etc.

  • ASTRO Update Moon Declination September-October 2011…

  • Anonymous

    you said ” and that rallied had legs ” can you be more specific ? because Cobra was specific about 1000 target with his evidence.
    you said ” This program is just getting started ” and you typed the result so far. One can also say 10 days ago that NDX, SPX, and Dow were down by same amount you mentioned, right ? In the same time we are still on earth  so the program might work well or may tend to be a fail, right ?
    by the way, I am a trader, what is important for me is to make money in this market but let me express my long term view:
    the bull/bear argument died since 2000 and we are in massive trading range ( Dow 12500 – 7000 ). In the same time we are now HFT world which is too fast, which means any analysis to the market will be change fast to the opposite direction even for Ben. And don’t forget the hundreds of unfilled gaps in both directions which prove that US market is not owned by US policy 100% and the world is affecting US market with more weight than before.

  • mail

    S & P 500-index volgende week 1165/1001! kijken chart http://mcclinbeursanalyse.blogspot.com

  • Hello! It’s me again with the Zweig Breadth Thrust data 🙂

    After the last “<10 day jump" in ZBT data in August, we had another one completed in the last week:
    October 3, 2011: 38,81
    October 12, 2011: 61,16
    SPX last (Oct 12): 1207,25

    So, eventually, SPX will be much (or less much, lol) higher than 1207 on Apr 12, 2013.

  • 99er
  • pullback almost complete, waiting for wave c to complete.
    click on my name for the link to my trading journal chart/notes.

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