Since we are not doing a market wrap today I thought this article summed up where the conventional markets stand. It seems as though many investors are waiting for the markets to show them more direction. The overall trend is down but the there easily could be a bounce coming.

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Stocks just can’t get of the mat. The kind of news that would have nudged stocks higher a year ago (i.e., no interest-rate hike) is perceived to be just “another nail in the coffin” today.

We’ve already seen the four-day, 10% August drop, a massive Dow Theory sell signal, and the “quadruple death cross” (the S&P 500, Dow Jones Industrial, Russell 2000 and Nasdaq Composite 50-day simple moving averages are now below their 200-day simple moving averages).

How much worse can it get?

Things may get worse before they get better, but they will get better. Of course, once they’ve gotten better, things may get worse again.

Stock market poetry aside, here is what key indicators suggest is next.

I am a firm believer in “research diversification.” Never put all your eggs in one indicator. That’s why I always look at the four (in my humble opinion) most powerful stock-market forces, and combine their message for a comprehensive outlook. The four forces are:

• Supply and demand
• Technical analysis

• Seasonality
• Investor sentiment

Supply and demand

Supply and demand (or if you’d rather, buying pressure or liquidity) is the engine behind any market-driven price movement.

We’ve been using indicators from the supply and demand family to gauge the strength of this bull market. Up until May 2015, the market was strong with no signs of a major top in sight.

Technical analysis

The weekly S&P 500 bar chart shows some basic support levels. Black trend-channel support is as low as 1720. Other support levels are at 1850-1775.

The initial August 2015 panic low at 1867 serves as natural (initial) support level.

Note the two blue boxes. The first one highlights the year 2011, the second, year-to-date 2015. I’ve referred to the 2011 analogy many times in recent months, and the S&P 500 continues to follow the 2011 script.

The Sept. 20 Profit Radar report listed five reasons why the S&P 500 will drop to new lows (or at the very least test the August low), just like in 2011. A detailed 2011 vs 2015 comparison is available here: S&P 500 Relapse or Recovery

Based on technical support levels, the S&P should carve out a more sustainable low in the 1867-1775 range. We should be able to narrow down the target range further as we get closer.

Investor sentiment

Investors are quite bearish, and sentiment is reaching the kind of extremes that leads to bounces. Newsletter writers and investment advisors polled by Investors Intelligence are as bearish today as they were in March 2009.

Seasonality

The chart below shows S&P 500 seasonality (based on data from 1950-2014) from September through the end of the year.

Illustrated is the average performance for the S&P 500 during pre-election years, during pre-election years with a Democratic President, and overall seasonality.

Late September/October is about the worst time of the year to own stocks. Nevertheless, October has also ended many bear markets and recent corrections (such as October 2014 and October 2011).

Based on seasonality, there’s light at the end of the tunnel.

Is the bull market over?

Lastly, starting in May, our favorite supply-and-demand indicator started to lose steam, and showed the same initial warning signs (a bearish divergence) that preceded the 1987, 2000 and 2007 market tops. For the first time since 2007, it is showing the bearish divergence needed to at least consider a market top. More detail on this indicator is available here: Is the Bull Market Over?