Usually bearish momentum is arrested under a swing low on a very short term basis, Below 1045, all gains from the Q3 earnings season will be wiped out, or rubbed out like Indians.

Given today’s weakness, following yd’s crappy consumer confidence CC report, the market is now aggressively bearish with all trade below this month’s CC and last month’s CC highs at 1070 and 1066 respectively.

Click on image to enlarge!

Remember that 1067 was the huge two-day high set on Tuesday Oct 14, two days after the Fed created a new lending facility giving primary dealers to ability to buy all the stock they could. Those primary dealers that bought the stock market up to and at 1067 were caught long until Sept 2009. Above 1067 in Sept and Oct 2009, what has been going on can be described as “distribution” to the bagholders being sucked out of money markets and into stocks.

If this premise proves correct, and that there is indeed a buyer’s strike in equities amongst primary dealers for the time being, the weakness that we are seeing in equities this week can persist into those mid-November cycles that I have been glancing at. A telltale will come as early as tomorrow’s GDP report. If the big money houses don’t aggressively buy a friendly Q3 GDP number on Thursday, then we can expect new move lows to follow. The intraday chart above shows momentum is aggressively bearish below 1067-ish for the balance of this week. Until there is a close above yd’s consumer confidence high at 1070, the risks to the downside are quite high. Short covering rallies tend to only travel 17-25 points in recent weeks, so, a short-covering on the GDP that fails at or below 1066-1070 could put the Oct 2 NFP low at 1012 at risk.

This is how we stair step the psychology from bull to bear. I will stair step the shift in psychology lower as warranted.

Old time readers are fully cognizant that when the market is below consumer confidence lows or highs, investor confidence can be said to be swooning (and diverging with consumer confidence), and how far that investor swoon may go is sometimes largely indeterminable. When it happened in Sept 08, we were categorically alerted under no uncertain terms that the stock market had zero upside potential based on these CC models. Until back above 1070, therefore, the stock market has zero upside potential again. Yes, there are boatloads of supports that the E-mini market must slice through in the 1030s near term. But consider the possibility that there is a buyer’s strike on now that distribution has occurred above 1067 in the past two months. In the event the buyer’s strike persists in the 1030’s, the October low at 1012 will be in jeopardy.

Consider that the supports in the 1030s will not work. We have a combination of a potential bull trap and a buyer’s strike here. We found and identified the bull trap first. Now, we are contemplating throwing a buyer’s strike on top of a bull trap. This is a deadly combo in the short term.

A lot of the cycles (which I don’t normally put much credence in) are coming due between Nov 6-20. I can never tell you if a cycle will be on a high or a low because they oftentimes invert, but at this juncture, my educated guess is that this time window will be a cycle low with all trading below 1070. I can’t stress enough how bearish things can get while under the CC high.