Bottom Line

The bottom line for the short term is that the market is setting up for a nice fall to new lows (beneath 1200 in the S&P). So aside from a very brief rally Monday morning, which should stay below 1280, the market will hit fierce selling again and take this market down hard again the rest of next week.

The key for the bears here is to wait for the capitulation decline. That is, once we see a huge massive selloff and then quick reversal and rally on strong volume and expanding breadth, we could be confident that short term trend has now switched to bullish and I'll exit my short positions. I am current short the Nasdaq 100, Dow, and S&P by using the double inverse ETFs, ticker symbols QID, DXD, and SDS.

The ensuing rally should be sharp and deep because it's a wave 2 within a wave (3). EWP says that wave 2's tend to be strong waves because most people are in denial about the larger trend, which is still down. Unsophisticated investors will buy the market up thinking the worst is over and another bull market has returned. They will be very wrong. Wave 2 will not exceed the beginning of wave 1 though, and the market will then roll over under very very fierce selling pressure in a wave 3 of (3). This should look almost like a straight line down when it occurs. Wave 3 of (3) should start in about 3-6 weeks which is late August to early September. That next wave of selling will absolutely destroy the market. And it will be the fastest and fiercest decline I'll have seen in my entire trading career.