The latest ups and downs of the market has seen us test the top once more but fail. The retrace produced the expected bounce out of the 1225 SPX area and set up the subsequent test of the top once more. Today that failed miserably when the Fed announced that it not only was raising rates but it remained hawkish in its tone about future hikes. The 1225 SPX area folded and the short term trend has turned bearish. It looks reasonably clear that the 1212 SPX area is the next target and likely in short order. If that fails, and I expect it to do so now, then the intermediate term trend will turn bearish also. That is the reason for this update.

The reason I say that the intermediate term trend is likely to turn down is that the other indexes had already given up their 50 day moving averages and the SPX was the last hold out ... until today that was. Now, it too has joined all the other major indexes where they are trading below their 50 day moving averages and, in the case of the DJIA, below the 200 day MA as well.

The key tell now is likely the Russell 2000 small cap index. If it breaks the up trend line that has been in place since the May bottom, then we indeed will likely turn down farther.

I expect this to happen quickly if it will occur, as early as this week.

Conclusion

The take away from the current thesis is that you have to position short for the most part for the foreseeable future. The charts have turned down on a short term basis and it now appears they will trade low enough to turn the intermediate term trend lower as well. Given the seasonal time frame, the early September rally now looks to fail and this should carry us lower into the middle of October. October has proven to be the lows of the 4th quarter in the past few years and if we trade significantly lower into earnings that may well prove true again. On the other hand, I have a gut feeling that the earnings are going to be worse than expected as companies use the dislocations of the hurricanes to clean up their books some and if the markets meander rather than get a sharp sell off, it could setup even more selling come the end of October. That we will have to revisit once we see how the market plays out in the coming weeks.