A Monthly and Quarterly close below the Yearly lows constitutes a breakout, which will lead to further erosion in stocks prices in the 4th Quarter...and a bear market of lower lows into 2010.
At this stage Prices are looking to go lower and will struggle to remain above the October 50% level, and probably sometime in the next quarter the S&P will end up around 1000 before any potential reversal up into the Yearly 2009 50% level, and then another leg down into 2009"
Previous Weekly report
DOW Weekly.....
I expected weakness in the 4th Quarter, and I expected another down leg in 2009, but I didn't expect the carnage that occurred this week.
Once last Friday closed below the Yearly lows (support) on the last day of the Month and Quarter the only way was down, with the DOW moving into 100% breakout of the range before finding any support in the market.
There are still over 2 months to go before this year ends, but where price closes in 2008 will determine how far markets go down into 2009.
As previously pointed out, the lower it closes in 2008 the further it goes down into 2009.
The only redeeming factor in this current price action is:- price will go back and re-test the 2008 breakout some time before the market continues down the following year
S&P Weekly
I normally have a fair idea on price action and the direction of the market using dynamic support and resistance zones within each higher timeframe.
The Previous Friday (3rd October) closed below major support zones, therefore I factored in that the 4th Quarter would continue down, but more often than not price moves in Monthly 'step' formations as it travels within the Primary range (Yearly).
Once price closed below the Yearly lows, my view was that global markets were heading down into the 4th Quarter lows.
The crash pattern didn't occur until price broke out of those 4th Quarter lows, and then it was a Free-fall:-Market CRASH
S&P 5-day pattern
Once the 4th Quarter lows failed to hold there were no more higher timeframe support levels in the market, and each day followed the 5-day pattern of rotating towards the 50% level and then extending outward towards the extreme each day.
My Market Crash didn't occur until Tuesday:- breakout of the 4th Quarter lows, but it wasn't helped by the previous Friday close below the Yearly lows.
Hedge funds had a field day due to the size of the trading ranges each day, with Friday having a 1000 point range from top to bottom.
S&P Weekly and Daily charts
So what do I Think will happen?
Long term:- Price will make it's way back towards the breakout of the 2008 lows late in this 4th Quarter or early in the first Quarter in 2009 and continue lower from 2009.
October lows resistance (breakout forms resistance), and the trend guide for the 4th Quarter will be defined by the November 50% level.
In the Short-term:- Hedge funds will continue to play around with the same 5-day pattern each day, and the Weekly ranges (green) shown in the Daily chart should be the trend guide for next Week.
I'm not going to pick the bottom in this market, the first sign will be a move above the 5-day 50% level, but will need to be confirmed with price trading above the Weekly 50% level.
Because if price remains below the October lows and closes below the October lows on the last day of this month, then there is an expectation that price will continue down into November lows.
If that's the case:- then around November lows could provide the ideal 'swing' low for a swing back towards the 2008 lows breakout
