The 4% rule has turned positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 24.1, showing some lessening of fear, and remains contrarian bearish. The primary Elliott wave count continues to suggest a wave 3 melt-down run remains underway, with the current wave count wave (ii) of Wave 3, and an out-right crash in the wave (iii) of 3 should land in the non-too-distant future as the wave (ii) counter-trend push exhausts itself.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

While the rally off last week's near crashing lows has been swift, the internal technical set-up appears to confirm the move nothing more than part of a counter-trend rally within an ongoing bear market. The stock indexes have so far retraced a Fibonacci 38% of points lost in the wave 1 collapse, which is the first potential stopping point for Elliott wave 2s. The 50% and 63% Fibonacci retracement levels are near the 50 day moving averages for the stock indexes, which remains the most likely stopping point for this advance. What should follow - once the wave (ii) ends for real (either here or at the 50 day MAs) - is a bona-fide melt-down run and probable crash in wave (iii) of wave 3. The current rally - which should remain very modest, if it hasn't ended already - should be the last chance to exit longs and enter shorts ahead of the pending collapse. Things should move very quickly to the downside once wave (ii) has ended, so any portfolio pruning should be done sooner rather than later, as later may never happen. Capital preservation remains key to the next few tricky months.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

Apple told us that while sales in the recent quarter were OK on the backs of the new I-Phone - if nothing spectacular - they also saw a pullback in overall consumer demand for their products, cutting forecasts for future quarter sales and earnings.

All suggestive consumers are struggling to keep their heads above the financial waters in the face of collapsing housing market, weak employment markets, and rising food and energy costs.

The stock market opened hard today on the backs of these smacks of reality in the head to complacent bulls, only for a rebound to land shortly after the open. Any and all rallies - including this one - should be used to exit longs and enter short trades in anticipation of a move to new lows. The internal quality during that expected hard decline should dictate whether such a move to new lows is destined to be a fake whipsaw as part of the bottoming process, or a bona-fide crashing capitulation crash.

Watch out: the repo man is coming to a street near you...

The short term momentum oscillators have turned negative once again, confirming the bearish stance of the AlphaKing Trading Indicator. We have new trades below to add to our short exposure ahead of an expected move to new lows.

The overall pattern remains solidly bearish, with every sell-off running in five waves and every bounce in three, all absent any sign of a capitulation spike down and corresponding up-spike in fear for the VIX. The rally last week has offered a great opportunity to add to short positions, and that is exactly what we are doing at this juncture.

The action today that matters landed after hours, with American Express and Apple both falling hard post earnings releases, on the backs of news that signals a struggling consumer resulted in both lower retails sales and deteriorating credit quality. In short: consumers can't pay their bills, thus they can't be expected to buy retail luxuries such as I-Phones and Plasma TVs. The technical set-up argues very strongly for a smash below last week's lows for the stock indexes, and a bona-fide crash may very well develop from that position. Time to batten down the hatches...

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

Kevin Wilde, Chief Trading Strategist AlphaKing.com

The 4% rule remains negative, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 25.5, showing some deceleration in fear, though well shy of anything that would signal the sell-off has suffered a capitulation needed to signal a turn positive. The primary Elliott wave count continues to suggest a wave 3 melt-down run is underway, with the current wave count wave (i) of Wave 3, though an out-right crash at this point is not out of the question.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary : It was a wild week in the stock market, with total volume just a bit higher than last week, and one accumulation day. We don't have the statistics yet, but it sure looked like some major short-covering was going on, as the Plunge Protection Team, with all the heavy hitters out trying to forestall a crash, and finally words from the SEC that they're going to crack down on naked short-selling. While we applaud the new enforcement promises, there is no credible evidence that it will keep stocks from falling. We expect the S&P 500 Index to break below 1200, with 1150 our target, to be followed by a larger, sideways churn area. While investor sentiment remains extremely bearish - thus signals the stock market is due a larger bounce - the internal wave pattern and overall technical set-up suggest at least one more scare-em type of plunge to new lows is needed to complete this down-leg of the bear. Thus, DOH, we are not there yet.

Have a Great Weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

What another volatile and interesting week, and one where the technicals suggest the bulls have scored a major victory. One that has the potential to turn the trend bullish for real. We will no doubt visit the larger implications of such a buy signal in regards to it being nothing more than a signal of a larger counter-trend advance within the confines of an on-going bear market. No matter what we will follow our indicators on the long side if they indeed trigger a new buy early next week. The stock market is overbought in the short term, and any pullback would likely stall any new buy. If volume picks up on any sell-off then the new buy maybe would be taken off the table for a while as the reality dawns that the recent rally surge was the ending move of an Elliott Wave 4 sucker move. The economic news continues to remain grim, so certainly that suggests the bulls are whistling past the graveyard. We at AlphaKing are getting ready for some rapid-fire trading (in-line with our indicators, of course.) Our indicators were designed to yield the highest overall return over the long term while minimizing false whipsaw signals, which is why we are waiting rather than jumping in on the long side right now.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

What another volatile and interesting week, where once again the stock indexes continue to map out in a near-perfect bear pattern, despite the mega advance earlier in the week. The pattern of every rally since the bear market began has been in classic Elliott three-step A-B-C fashion, which is a clear sign that the overall trend remains down. When we see a clear five step advance, then the bears will need to worry. The bulls have also failed to breach - and hold - the 50 day moving averages for the stock indexes, which is something else they must do in style if they are to turn the bear into a bull (or at least engineer a larger counter-trend advance to test the 200 day MAs.)

Overall we believe we remain in a period of manipulation, which is keeping the stock indexes from falling. Since next week sees the back of the first quarter - and the end to window-dressing manipulation - what should follow is a brutal breakdown to new lows. If volume remains light-ish (like it currently is,) and the number of stocks making new lows remain modest (like they currently are,) then we would feel comfortable labeling any breakdown to new lows an Elliott Wave 5, in which case we will likely see a more significant rally to test the 200 day MAs shortly there-after. If, however, volume picks up along with a rapidly rising list of stock making new lows on any breakdown to new lows, then we would feel comfortable labeling the collapse an Elliott Wave 3. In which case the sell-off should remain in force - and accelerating - going into the June turn-date. The economic news remains grim, and can be expected to remain grim going forward, which bolsters our belief that the bears will eventually win big this time around.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

What another volatile and interesting week, where once again the stock indexes continue to map out in a near-perfect bear pattern. Everything continues to point to the current action being part of the sideways churn set-up phase that should lead to the next melt-down run of an on-going bear market. The battle between the bulls and bears has moved toward yet another test of resistance of the 20 and 50 day moving averages for the stock indexes. What is interesting is the way each move down has occurred in a five wave pattern, while every rebound has comprised of three waves. While there is no guarantee that the bulls will fail to breach those all-important down-trending MAs - especially in light of the massive turn-date set to land this weekend - the internal action suggests an Elliott Wave bear market impulse pattern remains very much the higher probability play at this juncture. So all in, we believe we have everything in place for the stock indexes to either jump or plunge 10% or more in rapid order, with our best technical guess suggesting the bears are the likely victor this time around.

The fundamentals of the collapsing credit bubble remain grim, and there is no reason to expect news of big name financial companies in danger of going belly-up to stop hitting the news-wire anytime soon. While the FED is certainly trying to do all they can to force liquidity into the system to prevent a deflationary melt-down, this money is being sucked into the financial black hole created by the implosion of the leveraged debt markets. What seems to be forgotten among traders and the financial media is the on-rushing recession that should dominate the headlines going forward, especially as we enter earnings season. The stock market has gone sideways for a very long time, thus we are overdue for a big move to breakout of the recent trading range. The commodity sectors continue to collapse from their bubble peak, in-line with our expectation that a jump up in supply and a lessening of demand as the world moves into an economic slowdown of some significance.

We will turn bullish when our trend-following indicators tell us to, and until such a turn comes we continue to give the bears the benefit of doubt, and are prepared as we possibly can be for a crash if that is to be our future destiny.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

The stock indexes continues to map out in a near-perfect bear pattern, and this week we saw a clear acceleration in the selling once again. Bear markets are about slashing rapid moves to new lows as support is broken, followed by a partial retracement of the losses and a sideways churn period that leads to the next breakdown phase. Everything points to the current action being part of the next breakdown phase of the current bear. We will give the bulls some credit here: they are certainly trying to hold the late January intra-day lows. The battle was furious this week, with no real victor yet declared. The 50 day moving averages in the charts below sum up this monumental battle, along with support of the late-January intra-day lows, and the direction of the next big move should be massively follow-throughed upon in parabolic fashion.

The fundamentals - and boy were they bad this week! - suggest the bears are the likely victor, but you never know for sure, and any upside break of the 50 day would likely result in a move to the 200 day MA very quickly. Similar numbers to the downside can be expected on any bear success at pushing below current support levels. There are no shortage of reasons why the stock market should crash here - and it probably will - though I could also make a case that suggests the bulls may succeed in forcing a short-covering-led buying frenzy through those MAs. We continue to expect further manipulative attempts by the US and other authorities going forward, designed to spank the bears where it hurts, since that group seems to be the only one with money left to buy stocks with. We will turn bullish when our indicators tell us to, and until such a turn comes we continue to give the bears the benefit of doubt, and are prepared as we possibly can be for a crash if that is to be our future destiny.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

The stock indexes continue to map out in a near-perfect bear pattern, and this week we saw a clear acceleration in the selling, including a pick up in downside volume and an expanding number of stocks making new lows. Bear markets are about slashing rapid moves to new lows has support is broken, followed by a partial retracement of the losses and a sideways churn period that leads to the next breakdown phase. Everything points to the current action being the early stages of the next breakdown phase of the current bear.

It is difficult to gauge at this point whether the March 8 turn-date outlined above means an end to the sideways correction - and thus signaling a start of the next bear market plunge - or if it means an end to the prior down-leg and start of a rally into April when the shorter term turn-date is slated to land. While both the shorter term turn-date cycle and the more longer term focused one expected to arrive on March 22 have a 80% probability of being spot on at highlighting a significant turn, the March 22 one is by far the more important and stronger in nature. The difference in the two could also mean a turn in the commodities and currency markets (with the March 8 one signaling an end to the blow-off topping process in those sectors,) while the stock market continues its current direction into March 22. Thus they may be telling the same story, only from different angles.

Since we are trend followers, and since there is no clear reason to take profits and lighten up at this juncture, we will simply sit back and watch what develops from these turn-dates. If we crash into March 22 and see a completed five wave move we would certainly take that development very seriously - lightening up our shorts and taking profits - though the current set-up is too ambiguous and less clear in that regards, so we'll revert back to our current plan of trying to follow the bear leveraged and heavily short.

Overall it is clear we are in a bear market, and the current action is normal fare for bear markets, and what comes next should be a hard break to major new lows that scares the bejesus out of the bulls. Then we rebound, and the whole sideways churn thing resumes. Our plan is to load up short on rallies, and take profits and raise cash during the melt-down phases, using Elliott Wave and support/resistance areas to help time these moves. We think it is a great plan for the current tricky environment.

Fundamentally, the economy and the stock market remain in deep trouble, with further evidence landing this week to suggest a recession is fast approaching as the problems in the credit sector continue to accelerate. One thing we are looking for is further manipulative attempts by the US and other authorities. Since the US dollar is fast becoming a real problem - and conversely the commodities and inflation markets - an attempt to prop up the dollar at this juncture would only be a surprise to those positioned the other way (short the dollar, long gold/oil/and other commodities.) The FED are in a real bind while-ever the dollar remains crippled, thus the Paulson bunch may very well use this weekend to call in some favors to help turn this slumping tide. Be careful of (like: GET-THE-HECK-OUT-OF) any commodity related holdings you may have. If for some reason you are super-bearish on the dollar, and don't want any part of them, then feel free to send them to me, as I still kinda like them.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

The stock indexes continues to map out in a near-perfect bear pattern, and the one thing that we have repeatedly noted as missing from this near-perfect view was an acceleration of selling. Well today we got that in a significant way, as support level after support level was breached. The bulls have pushed hard in the month of February to turn a bear into a new investment nirvana, and today the breakdown of the major stock indexes gave them a sharp slap in the face for their efforts. The NASDAQ made a new closing low for the bear market, and stands just a percent or so above the intra-day near-crashing lows suffered in late January. New lows, along with an overall pattern of lower lows and lower highs carving out a prolonged downward stair-step pattern of prices, is the hallmark of bear markets. We are in a bear market. The current action is normal fare for bear markets, and what comes next should be a hard break to major new lows that scares the bejesus out of the bulls. Then we rebound, and the whole sideways churn thing resumes. Our plan is to load up short on rallies, and take profits and raise cash during the melt-down phases, using Elliott Wave and support/resistance areas to help time these moves.

Fundamentally, the economy and the stock market remain in deep trouble, with further evidence landing this week to suggest a recession is fast approaching, if not already here. The average loss for the S&P500 is 44.5% from peak to trough going into recession, and we're approximately only a third of the way there. We continue to expect lower stock prices over the next month or so, ending in some form of capitulation going into the March 8th and 22nd turn dates. If the February sideways churn was an Elliott Wave 2, then we face a real melt-down crash in Wave 3. If the sideways churn was an Elliott Wave 4, then we face a very sharp drop that soon reverses back to current levels in a V shaped Wave 5 move. Either way the next few weeks should be very painful for the bulls, and very profitable for those positioned ahead of the curve.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

The 4% rule remains negative, while Federal Reserve policy remains positive. The VXO volatility indicator closed the week at 26.5, showing yet another move into the complacency camp, and remains bearish. The primary Elliott wave count continues to suggest a bear market wave 3 decline remains in progress, which should lead to major new lows in the weeks and months to come. Wave 3s run two, three, and sometimes many times more the points dropped in wave 1, so we're talking NASDAQ 1860-1540, SPX 1050-875, and Dow Industrial 9600-8000 before the wave 3 low would be expected to be complete. For those who are following the wave count in more detail, any break below of SPX 1316 would confirm a wave iii of wave 3 meltdown run has begun. You do not want to be caught long if that happens.

Traditional seasonal trends had us looking for a rally into the first quarter of 2008 (so much for that!) while the Presidential cycle also remains bullish, suggesting a continuation of buy the dips working throughout the first half of 2008 (good luck with that one too!) The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle calls for the bear market swoon to pick up speed into early March - with March 8 as the most important date for an expected turn (shorter term,) and March 22 (longer term) - and from there a larger rebound rally and sideways churn period should unfold going into early May, leading to a final down-leg of the 2008 bear that ends in a capitulation washout in June/July. The remainder of the year should fit the bull's view of a rebound rally into year-end, though starting from much lower levels than the bulls can imagine.

Summary:

The stock indexes continues to map out in a near-perfect bear pattern, and the only thing missing the expected acceleration of selling, which includes an expanding number of stocks making new 52 week lows. We saw some of that today - with a modest expansion of stocks making new lows - though the volume remains a bit of a bust for both the bull and the bear case. Basically the market remains in limbo - with a modest downward bias - while we await some news to lands that seals the deal for one side or the other. Friday saw some breakage of significant support, before a rumor of a bailout of the troubled monoline insurer, Ambac, landed to help the bulls engineer a push back above the said broken support. All it achieved, chart-wise, was yet another Elliott ii counter-trend move, which leaves the chart with lower lows and lower highs. As we wrote yesterday: something has got to give from this precarious technical position, with the trend the bears to lose.

Fundamentally, the economy and the stock market remain in deep trouble, with further evidence landing this week to suggest a recession is fast approaching, if not already here. Stock markets do very poorly going into recession, due a collapse in earnings of individual companies, especially those in the economically cyclical areas, and those who provide goods and services to consumers. The average loss for the S&P500 is 44.5% from peak to trough, and we're approximately only a third of the way there. We continue to expect lower stock prices over the next month or so, ending in some form of capitulation going into the March 8th and 22nd turn dates. If the current sideways churn is an Elliott Wave 2, then we face a real melt-down crash in Wave 3. If the sideways churn is an Elliott Wave 4, then we face a very sharp drop that soon reverses back to current levels in a V shaped Wave 5 move. Either way the next few weeks should be very painful for the bulls, and very profitable for those positioned ahead of the curve.

We do expect to go long sometime this year, though the conditions have yet to be made for a lasting bounce to land, with a real capitulation by the bulls one key that the end of the bear is near. So far the bulls remain way too hopeful - a bad habit of bulls that often gets them into trouble - that someone will step forward to save the day, rescue the economy from the grips of recession, and the financial system from the precipice of internal destruction. Unfortunately the mountain of debt overhanging the economy is not so easy to wish away, and things are unlikely to get better until the weak have been cleaned out. The stock market nor the bulls are going to like that part of the process.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

Visit the site below to read more about AlphaKing and the Elliott Wave Principle:

http://charts.alphaking.com/tours/portfolios/
http://alphaking.com/education/
http://alphaking.com/education/elliott_wave_principle/

The 4% rule remains negative, while Federal Reserve policy remains positive. The VXO volatility indicator closed the week at 27.4, showing yet another move into the complacency camp, and remains bearish. The primary Elliott wave count continues to suggest a bear market wave 3 decline remains in progress, which should lead to major new lows in the weeks and months to come. Wave 3s run two, three, and sometimes many times more the points dropped in wave 1, so we're talking NASDAQ 1860-1540, SPX 1050-875, and Dow Industrial 9600-8000 before the wave 3 low would be expected to be complete. For those who are following the wave count in more detail, any break below of SPX 1316 would confirm a wave iii of wave 3 meltdown run has begun. You do not want to be caught long if that happens.

Traditional seasonal trends had us looking for a rally into the first quarter of 2008 (so much for that!) while the Presidential cycle also remains bullish, suggesting a continuation of buy the dips working throughout the first half of 2008 (good luck with that one too!) The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases.

Summary:

The bear pattern continues to map out in a near-perfect pattern, and the only thing missing is the expected acceleration of selling, which includes an expanding number of stocks making new 52 week low. All it should take is one bad day from this position for that acceleration to the down-side to start for real. Fundamentally, the economy and the stock market remain in deep trouble, with an expected acceleration of bad news landing over the next week or two as the monoline insurers either are able to pull in some serious bail-out funds to keep them solvent, or they are broken up and the mortgage insurance side of the market gets downgraded and eventually goes belly-up, forcing other financial institutions who are relying on cashing in a major portion of that insurance to take further write-downs on their busted mortgage security portfolios. The stock market is not going to like that scenario. Next week should be pretty scary on the action and reaction front, with the bears once again the likely victor.

We are adding a new indicator and set of trading variables to our prediction arsenal. While we are primarily trend-followers who follow the markets lead no matter which direction they want to go, the big picture of expectation is very helpful in defining when to adjust our portfolio positions to maximize returns. This new indicator and set of trading variables is designed around some cycles we have found to be quite useful and quite predictive. It comes with a series of turn dates where the markets should be best positioned to make major turns in trend, and our approach is to co-join these potential turns with our Elliott Wave expectations and other cycles. Here's the view of this indicator and set of trading variables for 2008.

The AlphaKing seasonally adjusted cycle calls for the bear market swoon to pick up speed into early March - with March 8 as the most important date for an expected turn - and from there a larger rebound rally and sideways churn period should unfold going into early May, leading to a final down-leg of the 2008 bear that ends in a capitulation washout in June/July. The remainder of the year should fit the bull's view of a rebound rally into year-end, though starting from much lower levels than the bulls can imagine.

The stock market is closed on Monday for President's day, thus our next update will be after the close on Tuesday. Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

The 4% rule has turned negative once again, while Federal Reserve policy remains positive. The VXO volatility indicator closed the week at 30.4, showing an increase in investor fear. The primary Elliott wave count continues to suggest a bear market wave 3 decline remains in progress, which should lead to major new lows in the weeks and months to come. Wave 3s run two, three, and sometimes many times more the points dropped in wave 1, so we're talking NASDAQ 1860-1540, SPX 1050-875, and Dow Industrial 9600-8000 before the wave 3 low would be expected to be complete. For those who are following the wave count in more detail, any break below this week's low - at SPX 1316 - would confirm a wave iii of wave 3 meltdown run has begun. You do not want to be caught long if that happens.

Seasonal trends had us looking for a rally into the first quarter of 2008 (so much for that!) while the Presidential cycle also remains bullish, suggesting a continuation of buy the dips working throughout the first half of 2008 (good luck with that one too!) The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases

Summary:

Two technical aspects jump out at us after this weeks difficult trading action. One is the near-perfect Elliott Wave pattern that suggests a collapse is set to start very soon. The other is the improving - complacent? - technical picture that is giving some measure of comfort to the bulls as the stock indexes move to retest the crashing lows of a couple of weeks ago. The downside leadership of the bear so far has been the transports, financials, homebuilders, and retail stocks. All of which have done reasonably well over the past few weeks, despite some horrendous economic news landing that pertains to these consumer cyclical sectors. It's as if the broader markets get the message that a recession is fast approaching and a vicious bear underway - with the major stock indexes retesting their lows - while at the same time some big money bears are being forced to cover their positions in some of the more beaten down sectors. Clearly one side of this argument is going to proved correct, while the other gets slammed.

In some regards it stinks of market manipulation, but if Uncle Ben and his friends are scheming to force the bears into a capitulation, will their actions be enough to overcome the economic and company specific news that is surely heading our way in a hurry as the credit crunch picks up steam, and recessionary realities slap the financial media awake to the plight of wounded consumers and companies? The stock indexes remain on the precipice of a humongous collapse, and the bulls will need a miracle not be swept over the edge as the next flurry of news lands. Be careful out there. As trend followers, our plan is laid out well in advance, and no matter what happens we will follow our indicators in whatever direction they want to take us. It seems way too soon to us for the bear to be over already, but our job is to let the market decide where it wants to go and then us to follow early on in the move. If that's destined to be over the edge for real next week, then so be it. If that's destined to be a second rally that soon fails as it runs into some stiff resistance and then tanks, then we're ready for that too. If any second rally attempt turns out to be stronger than we or anyone else expects then we'll reverse our positions and go long as our indicators turn positive. We are in a war. War is rarely pretty. In war it is winner takes all, and the rest are dead - financially speaking, in this instance - and the AlphaKing Trading Indicator is our insurance that we will end up on the winning side this time, and all times, no matter what lies in our future. Expect more of the same next week...volatility and uncertainty...but also perhaps a resolution to this bull/bear dilemma. Expect some financial blood to be split.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

No one rings a bell to say when bear markets end and a new bull market starts. What happens is investors and traders capitulate so much that stocks become washed out, and start heading higher on impressive internal action. Then the AK indicators turn positive, and the rally keeps going and going and going, surprising just about everyone as it climbs a wall of worry. The internals have certainly improved somewhat, with many of our confirming indicators turning positive this week. It would be nice to say the bear was over and a new bull market underway, but...

No one rings a bell to say when bear markets end and a new bull market starts. The AK Indicator remains bearish, as does the Elliott Wave count. Bear markets come in a series of vicious downward stair-step moves comprised of large breakdowns to new lows followed by a slashing V shaped recovery bounce that retraces a 1/3rd, 1/2, or 2/3rds the points lost in the prior breakdown run. Then another large breakdown to new lows lands and the process is repeated. And repeated. Until eventually traders and investors capitulate for real and stocks become truly washed out. Each new step down advances the internal damage, with bears becoming more severe and more painful the further they travel time-wise. It is also important to note that each bounce off each new crashing low brings out the call from the bulls that the bottom is in. So sentiment switches from super-bearish during the breakdown to new low phase, to super-complacent in a hurry as stocks bounce off the lows and the pundits and perma bulls scream it's over for real. Only to be whipsawed and be taught the painful lesson about bears once again...

The stock indexes closed near the 50% retracement of points lost level from the prior breakdown to lows mini-crash, and sit close to the exact point where the next down-leg of the bear would be expected to commence. No one knows, no one can know for sure, whether this or that low is the THE one to mark the end of the bear. As trend followers we are certainly not going to go long while our indicators remain in sell mode - nor hold shorts while our indicators are in buy mode - and the way we use this analysis of past historical patterns is to load up fully invested short as the recovery bounce moves into stiff resistance of prior support levels breached on the prior bear plunge to new lows, and then lighten up on our shorts and take some profits off the table as the stock indexes crash to new lows and the risk of an expected rebound grows. With that in mind we lightened up our shorts and removed leverage from the Index portfolio a couple of weeks ago, and started adding to our shorts this week as the rally has unfolded. We expect to re-add leverage to our short position in the Index portfolio on any continuation of the rebound rally next week, as well as going all-in short in the GrQ/8 Hedge fund portfolio. We plan to keep repeating this process until either the stock indexes hit our downside target levels, or trigger a new buy signal on a bounce that keeps on going. We believe it is an excellent plan for the current environment that should reward us handsomely over the long term.

Have a great weekend!

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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