Mega Mergers and the Market

The stock market is pausing briefly to consider what the mega merger of MRK and SGP means, and how many more mega mergers that corporate America will undertake in order to survive. The MRK/SGP merger was announced this morning, but what traders want to know is will mergers help stabilize the market. Usually a preponderance of mergers, acquisitions, and bankruptcies act as signals to the end of a bear market. But this bear market is still fighting through the forward outlook of socialism.

The bear will eventually find a near-term bottom that will probably build into an intermediate term holding area. Here are two scenarios that we are coming upon:

This is the monthly chart of the SPX showing the 27-year macro bull market and ensuing retracement. You can see the SPX is sitting right on the 61.8% retracement of the 27-year bull market.
(click on image to enlarge)

This is the monthly chart of the Dow showing the 27-year macro bull market and ensuing retracement. You can see the Dow is sitting above the 61.8% retracement of the 27-year bull market by about 600 points (or 10%).
(click on image to enlarge)

Which one will hold (or will neither hold)? No one knows for sure, but if the market starts fading through Friday's lows, then it's likely that the market is headed for the lower Dow Fibonacci retracement in the 6000 area. If the market can start working its way above Friday's highs, then perhaps the SPX retracement level will hold.

For now, the market is pausing and thinking. The longer it thinks, the more it may not like what it thinks.....but if the market can build this morning, it may finally find a short term bottom.