Major Trend Changes... What To Do Now!

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You can see the long-term downtrend (blue line) and the intermediate-term uptrend (red line) are colliding on the chart below.


In fact, I believe the increased stock market volatility over the last few weeks has been caused by this event.  The bears and bulls are fighting for control of the market.  It’s causing wild swings unlike anything we’ve seen since the market bottomed in March.

But what’s the significance of the trends?  Why the increased volatility?

Simply put, the long-term downtrend is providing resistance to the market moving higher… and the intermediate term uptrend is providing support, keeping the market from falling.  This is causing volatility.

Remember, the longer the trend, the more sway it holds over the market. Right now the dominant trend is still down.  So it’s not surprising stocks pulled back once they reached the resistance level.

Bullish traders are buying back into the market on the pullback.

They’re hoping to ride stocks up to the next resistance level and take profits again.

But the bears have a different view.  They see this rally as nothing more than a bounce (albeit a significant one) inside of a secular bear market. Now that we’ve reached the long term downtrend, they’re expecting the market to move lower.

Here’s the key… Until the market breaks through the downtrend, it remains the dominant force in the market.

This is an ideal opportunity for the bears to ‘make a stand’.  Not only are they selling their long positions, they’re shorting stocks.
 
The real crux of the matter for the bears is this…

If the market rallies and holds above the downtrend line, it marks the end of the trend.  This would seem to put a final nail in the coffin of the secular bear market argument.  It would also indicate the emergence of a new dominant trend… a bullish uptrend.  It’s no wonder bears are mounting an attack at this technical resistance level.

You should expect increased volatility to persist over the next few weeks as bears and bulls battle for control of the market.

Now, the recent fundamental data is painting a slightly different picture. The steady stream of improving economic data tips the scales in favor of the bulls.  And once the S&P 500 breaks through the downtrend, we’ll see the market take off.

Here’s an easy way to trade this setup.

Once the S&P 500 breaks through the uptrend and the previous high (around 1100), buy the ProShares UltraPro S&P 500 (UPRO).  It’s the first ETF offering triple (300%) leverage of the S&P 500.  Leverage will turn every 1% gain in the S&P 500 into a 3% gain in the UPRO ETF.

Wait for the battle between the bears and bulls to be settled.  If the bulls win out, UPRO should be a big winner as the whole market rallies.

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