Be prepared for a retest of the Aug low now

It's really amazing how people in the market can change their mood so fast. When I said I was very bullish just a little bit over a week ago, hardly anyone was happy and joyful about the stock market. Honestly, I did not expect this kind swift change almost like overnight from depression to euphoria. That's why this mood change appears more like a schizophrenic behavior. It is purely beyond my expectation. I thought it would probably take at least 2 weeks or so with a few times of back and forth to move the S&P above 2000. But it has just happened like a snap of fingers and S&P shot up non-stop for 5-6 days, going directly above 2000 and reaching almost 2020. I initially targeted 2030 as its turning point but I'm not sure this will need to happen anymore.

You see, now the situation is just a mirror image of what it was a week ago: now all the people in the market are happy and fearless, all stepping on the euphoric side of the boat (as opposed to the depressing side a week ago). As I said, when this happens, the boat tends to tip over. The market is clearly rather overbought. S&P is at its upper end of the Bollinger Bands and the Stochastic Oscillator (SO) index (at the bottom) is approaching the highest level at 97.2. Mathematically SO cannot go over beyond 100! You may check the SO over the past year when it was at that level and what happened next. It almost always preceded a sharp decline of S&P. VIX, the fear index, is below its BB lower end, indicating it will soon move up (which usually means a declining stock market). The call option prices for VIX are also much more expensive than the put options, suggest higher VIX in the next few weeks. The junk bond prices are starting to turn down as well, which often the leading indicator for the stock markets. There are simply too many technical indicators that suggest this dead cat bounce is close to its end, if not yet ended. I bet starting from next week, S&P may resume its next leg down, and likely will go down to test its Aug low or even lower.

Remember what I said 9 days ago: I think its final plummet may only start when it is over 2000 and when most of the people start to think this correction is over and starts to be quite bullish for longer term into the year end rally. This is likely the time when the market will start to punish as many investors/traders as possible. I believe the time is ripe and the market will show its mighty power to punish as many as possible. BE CAUTIOUS!!