Minyanville Professor Kevin Depew posts bullish percent indicators every day. Today’s numbers were the worst I have ever seen. From Kevin:

Here is where we stand with the point and figure bullish percent indicators for equities, based on Investors Intelligence data.

  • NYSE Bullish Percent: Os (Negative) 9% – lowest since 1987
  • S&P; 500 Bullish Percent: Os (Negative) 7.9% – exceeds 2002 and 1998 lows
  • Nasdaq Composite Bullish Percent: Os (Negative) 13.4% – lowest since 1987
  • Nasdaq-100 Bullish Percent: Os (Negative) 4% – in 2001, this indicator actually reached 0
  • Russell 2000 Bullish Percent: Os (Negative) 14.1% – equals January low
  • NYSE High-Low Index: Os (Negative) 2.5%
  • Nasdaq High-Low: Os (Negative) 2.8%

It is easy to be bearish given the circumstances, but the fact of the matter is these indicators are so washed out and so low that the probabilities increasingly favor a sustainable rally. Given the macro headwinds combined with approaching earnings season, it is doubtful this is THE bottom, but we are nearing, or at, a low. Keep in mind, these are probabilities. The market may simply continue lower. Yesterday’s action was not capitulation in the traditional sense.

Based on some additional technical work I have been looking at SP 960 as a downside target with the intention of buying on moves below 1000.

Here is a chart I am looking at from an Elliott Wave Perspective.

$SPX Monthly Chart

click on chart for sharper image

If this is a wave 5 decline, the target for wave 3 would be near 966 (1.618 * Wave 1).

In Elliott Wave terms, crash wave 3 may be nearly finished. Of course that means wave 4 (a correction up) and wave 5 (yet another move lower) are coming up.

Risk reward is no longer on the short side even if longer term fundamental issues to the downside are not finished. This is a good place to be lightening up on shorts, taking profits on PUTs, and heading for the sidelines for further directional clues.

Mike “Mish” Shedlock
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