After a breakdown you get jitters. We are confident of two things here. One, that they will try to rebound the market twice; and then, second, that we’ll see a compelled selling wave after the first effort, writes Gene Inger Monday in The Inger Letter.

Bulls looking for fast recovery will find rehabilitation isn’t pain-free. It is not gloating, but trying to be of service that I constantly forewarned of the downside risk of breaking June S&P 500 (SPX) 2600 during last week’s lateral or desperate efforts to hold the line, pointing out there was a line. 

chart 1

The irony is that financial media analyzes a market move well after it’s had the best part of the downside, and incidentally not exactly going to be in good shape despite predictable rebound efforts.

This really has gone on for more than two months in the evolving pattern we identified.

They’re nervous as all get-out over the primary trendline at risk, so they may try twice to reverse it but ultimately without success.

chart 2

Furthermore, our idea was that those who didn’t use the quarter-ending lifts to lighten-up, or worse if they used it for buying even more, would in my view find themselves April Fools as soon as we got through the holiday weekend.

I was not trying to demean anyone as much as forewarn of the looming risk. It really was an ongoing declining structure. That required selling back in January ideally, or at-worst in the forecast rebound of February from the twin-lows. Or as double-tops were made at the S&P 2800 level during the desperate rebound efforts.  

In fact, that’s the irony. I have failed to understand why so many analysts or pundits defended the markets, not just of course by rationalizations about the FANG and other overpriced formerly leading stocks, but because the S&P technical pattern was so glaringly revealing of what was going on and has been all year.

In-sum: This is not a new decline, but another purge from an S&P way-station dating all the way back to our January 25-26 warning of a crash alert.

Of course, that didn’t mean the market has to completely fail in an instant (though it came close a couple times), but that conditionsin which a crash can occur prevailed.

As I viewed all of it as a process. That’s why I included rallies I termed one could trade but not invest for during the evolving distribution pattern.

This structure has more to go and now algorithmic trap doorprospects return to the forefront of possible ways the market evolves to lower levels over time. It doesn’t easily go that way because of the so-called superb institutional structure, but does enhance risk that many of the algo-driven systems will generate exodus signals. 

chart 3

Bottom line: After a breakdown you get jitters. We are confident of two things here. One, that they will try to rebound the market twice; and then, second, that we’ll see a compelled selling wave after the first effort. 

If you want to talk about anything signaled, it might be for portfolio guys and gals that remain overly-long and bloated, to pray for rallies to sell in expectation of lower prices. The rest of us know that ultimately the move we'll make is going to be on the buy side eventually (whether for a trade or for investing depends on when and the circumstances assessed).

The only way we’d be sellers (for a trade that fades, not of retained holdings) would be if they circle the wagons and thrust the market straight up in a desperate Hail Mary. I know they want to try, but their odds are slimmer this go-round, even as Washington tries to dampen concerns by pointing to a solid economy, the prospects of a new NAFTA deal, and so on. 

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