Weekly Summary, Jan. 23, 2016 This Still Looks Like Just a Correction

Weekly Summary, Jan. 23, 2016
This Still Looks Like Just a Correction

Last weekend, we stated that we expected some further deterioration in the market, but that at least a temporary rally was very likely. That is exactly what happened; a further downside extension in the first few days of the week, then a 100-point rally to produce a long tail (bullish) pattern.

We presented the long-term Rydex versus the S&P 500 relationship, and highlighted the divergent pattern that develops before major bear-market turns (see bellow).

This week, we show that there was a short-term divergence preceding the 2011 correction, and that we again had a short-term divergence last year preceding the present down-turn (see below). This further increases the probability that we are in a correction, not a major market turn.

We continue to emphasize, however, that these are only probabilities NOT prophesies. If our Price Modelling System turns long-term negative and the price action does not show some follow-through, then we will reassess. At the moment, we still see this as only a correction.