SURPRISE: THE MAX CONFUSION SCENARIOS GOING FORWARD
I wanted to update the study I posted to the website on December 22nd. The correlation between July/August time period and the current market continues to be extremely relevant, deserving close observation.
The scenario the study points to fits in well with the maximum confusion scenario that I see for the markets. A continued sell-off into the end of the year will fall under the highly unusual and anomalous frame for the markets. This will lead to a general consensus that since we are about to embark on the first week of 2012 and tax loss selling has subsided, it is now safe to begin nibbling come early next week.
The market will continue falling through next week , possibly carving out a low during the second week of January, after most of the bulls have come to realize that the seasonal studies they rely on aren't of any use in these conditions. I think that a weak rally through earnings is a possibility. I also have on the table a possibility of a continued plunge right into the mid to late January, with a low coming around the 24th-25th. This alternative is obviously the most bearish of scenarios.
Both of these scenarios have us moving below 1200 at a minimum, with an outside possibility of a move all the way to the October lows in January.
These are the max confusion scenarios as I see them currently. I'll make adjustments as needed along the way.
Here is an updated chart of the study posted originally on December 22nd, with updated notes:
click chart to enlarge
SPY
