The Bull's Broken -- Here's What Happens Now...

It ain’t over ‘til it’s over…

The late baseball hall of famer Yogi Berra is famous for quotes like this one. And it appears most analysts and investors are clinging to his mantra right now.

Everywhere I turn, I see analysts defending stocks and price targets. And the financial news programs have all but given up on highlighting the biggest movers of the week. Instead, they’re trotting out guests who remind folks that selling stocks is for wimps and weirdos. Real investors buy and hold through the market’s rough patches—no matter what.

Heck, they’ve even started pushing out holiday sales projections to distract everyone from the carnage. According to Deloitte, online sales should show an 8.5 to 9% increase over the holidays, Fortune says. Get those orders in! Only 92 shopping day left ‘til Christmas!

However, as we watch stocks drift lower once again this week, one thing has become painfully clear: Everyone has forgotten what a real correction feels like. Well, today we’re going to try to figure out what’s in store for stocks for the final quarter of 2015. Buckle your seatbelt—it could be a bumpy ride…

Remember, bull markets tend to reward bad behavior. You can hang onto crappy stocks when you shouldn’t—and you still might make money. Not anymore. Fact is, most folks have forgotten what a market correction feels like. And now that the major averages (and most stocks) are well off their highs, no one seems to grasp the fact that lower prices could appear in the very near future…

Here’s a chart we showed you just a few weeks ago:

Does the Elevator Go Up?

So about that “V-bottom” everyone was wishing for…

It hasn’t exactly materialized now, has it? Instead of shooting back up toward new highs, the market has forced us to endure four weeks of agonizing chop. And as far as we’re concerned, the October 2014 lows on the S&P remain in play.

If the major averages can’t hold their October lows, we could very well see another leg lower. That would mean the bounce we’ve experienced is actually the beginnings of a bear flag, in which the market alleviates its oversold condition before once again seeking lower ground.

With the S&P finishing lower four of the last five sessions, we’re already seeing it quietly sink below its wedge. This is how it looks as of this morning:

Another Leg Lower

Stocks aren’t following the bull market script anymore. That’s why you should forget what the “buy the dip” crowd is spewing. Instead, you should take a more tactical approach to your trades. Don’t hesitate to sell any rallies— use them as an opportunity to get out of any trades that have gone sour.

Listen, we just recently experienced 47 months where the market didn’t offer up a 10% correction. That’s incredible. And now that stocks are moving lower, you might feel some discomfort. It could take some time for this market to cleanse itself of this choppy action.

What you need to watch right now is how the market reacts to the lows established during the October 2014 pullback. If stocks manage to keep their heads above their October lows, we could very well see a tradable bounce after some more chop.

As of today, I don’t think the market will jet back to new highs as if nothing happened. However, stocks could stabilize and give you a chance to strategically place some meaningful trades as the market sorts itself out. Never fear— we can always find some dark corner of the market that can grant us a few winning trades.

But if we do break down and the October 2014 lows crack, I wouldn’t be surprised to see another 10% chopped off the averages before all is said and done…

Sincerely,

Greg Guenthner
for The Daily Reckoning

P.S. Get ready for some more chop. Stock up on the forgotten commodity. If you want to cash in on the biggest profits this market has to offer, sign up for my Rude Awakening e-letter, right here. Stop missing out. Click here now to sign up for FREE.

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