A bit of economic news sparked a minor rally on Tuesday. The Dow touched a new 4 year intraday high and the financial news media celebrated the moment with banner headlines:
In spite of the fact that not one market index anywhere in the world even came close to confirming the new Dow high, market participants have greeted the move with unanimous, optimistic glee. The only thing missing was party hats and streamers. At this point in market history, virtually no one is even interested in hearing about any kind of top in any time frame and no market analysts are entertaining the notion. The bullish psychology rivals that of the 2007 top.
But the real news of the day was the intraday reversal from the high. There was a total reversal from high in Small Caps, Global Market Index and Nasdaq. If the session hadn't come to a close other indices probably would have followed. Apple reversed from a 2.1% gain to a .4% loss.
On Wednesday the market gave us an aggressive sell setup after a clear B wave rally which ended with an intraday reversal and failure back through the apex of a rising wedge formation:
But the more important view is longer term and global. A survey of world markets shows that, outside of the US, markets have been in the process of forming a multi-year Head and Shoulders top since 2010:
A survey of the financial news media and popular blog sites finds virtually no bears or bearish market analysis. The analysis contained in my latest BullBear Market Report suggests strongly that not only have we seen an intermediate term top but also a long term top. According to my currently preferred scenario, the rally off the 2009 lows actually ended in February 2011, and the rally off the 2011 lows has been a B wave countermove. That has terminated or is close to doing so and the Major C wave decline is either in progress or soon to begin.
Let's recap some of the important market turning points leading up to the current market setup:
July 28, 2011
If one were to analyze US markets alone one might lean more to the bullish side on the eventual resolution of the current market impasse. But taking world markets as a whole raises bearish flags in my mind. The setup for a major break of support that existed at the June bottom is back on the table. Many indexes did not really participate in the rally off the June bottom and are in worse technical chart condition than they were at that time. None are really in an improved condition. This does not mean that a bearish break is inevitable or that there won't eventually be an upside resolution. And it also doesn't mean that a break could be a false break and might not be ultimately reversed to the upside. But the setup for a global stock market meltdown is there, as it was a month ago. It would not be smart to ignore it or dismiss it.
Steven Vincent, Review of World Stock Markets
October 4, 2011
My current take is that the B of major B is over and we are starting C of B up. From here we would get a five wave C wave to complete the major B wave pattern. Then the major C crash would begin.If my analysis is correct and the major B is NOT complete yet and there will be a rally to complete it, then it should retrace between 50% and 78.6% of the major A wave. Believe it or not, it could even go on to make a higher high! I don't think that it will, but its within the technical bounds of the setup. The fact that the first two legs of this B wave took so long and were so volatile tends to suggest the C of B could go higher than most think possible.Steven Vincent, BullBear Market Report, 10/04/11
November 28, 2011
Based on what I have seen so far, today's big 1.7% gap up in the futures market probably marks the end of the decline and starts the C of C rally back to the top. I recalculated the Head and Shoulders measured move (distance from head to neckine minus point of neckline break) and it turns out the target was hit perfectly together with a retest of the red declining resistance line and the 61.8% Fib retracement of the prior move.
In general, market psychology is rather bearish as most pundits continue to emphasize the doom and gloom surrounding the European debt crisis. While the situation may be grave, the monetary magicians still have quite a few rabbits in the proverbial hat and we can expect the markets to rally each time they produce a new one. The featured magician going forward will be Christine Lagarde and her amazing International Monetary Fund bailout pool, which will attempt the heretofore unattempted feat of getting the entire world to buy into the long term future of a bankrupt Continent. This act will likely be staged over a period of time, however, with the opening moves sparking asset market rallies but the final act only coming as a deflationary episode is already in progress. At this juncture it's impossible to say how long this will take. As I said before, the rally is likely to go "higher than you think" and I would say that this topping/bailout process will likely also take "longer than you think".
The post-Holiday leap in worldwide share prices very likely marks a significant market bottom. Technical analysis indicates that the ensuing rally will most probably be on an intermediate to long term degree and will last any where from several months to a year. It's roughly akin to the rally following the August 2010 low. In the short term a retest or even brief penetration of the recent bottom is possible, but traders are better off buying whatever dips may present themselves going forward.
My confidence in a significant bullish interlude before any serious bearish phase is rising. I'm fairly confident that the time to position for a significant intermediate to long term bear phase has not yet arrived, and that intermediate term traders should be able to ride a very nice bull run for a 3-6 month period going forward from here.
The primary scenario places the market at the beginning of the final rally of a B wave correcting the A wave of (E) that started in February 2011.
In this scenario the recent decline was a three wave minor B correction of the rally off the October low. Note that it retraced an exact 61.8% Fibonacci of the prior wave. The ensuing wave higher, presumably beginning today, would take the markets back to and beyond the February and May highs to complete the B wave and set up the Major C decline from there. At that point psychology and sentiment will have shifted to neutral or even excessively bullish and long term technical oversold/excessively bearish conditions will have been corrected and most likely we will have abundant bearish technical divergences (market price makes higher high but indicators do not). The ensuing Major C of (E) would be a spectacular panic in five waves that would finish off the long term bear market and set up a lifetime buying opportunity.
March 29-April 4, 2012
DAX is showing a lower high and lower low after tapping its broken trendline from below:
EuroStoxx 50 has broken support and is below all its EMAs, which have started to roll over and turn down together:
I reviewed all world markets and I could post chart after chart after chart which shows similar bearish technical setups. While US markets may possibly rally back for one final minor B wave high before the main body of the C wave decline begins, essentially the B wave rally off the 2011 lows is very likely OVER.
There is now little doubt that a major decline has begun in world asset prices. An overall review of global markets including equities, commodities and bonds tends to support the thesis that a MAJOR C WAVE decline has just begun. Whether the decline will take the shape of A-B-C (1-2-3-4-5) or C (1-2-3-4-5) is not yet clear. in either case yesterday was an ideal entry point for a short position. Rallies are selling opportunities from here forward.
I'm not sure I've ever seen such a glaringly obvious technical setup for a major reversal go so totally unrecognized by virtually the entire market. The one-sided psychology prevalent at this top virtually assures that it will be a swift and dramatic fall. While one could possibly construe some bullish notions if one were to restrict analysis to a box bounded by the charts of SPX, NDX, INDU and APPL, if you look at the rest of the world, commodities and the technical indicators it is virtually impossible to stay bullish on global asset prices. In fact one must conclude that yet another massive deflationary bust is right around the corner.
SPX has broken its uptrend from the December low.
April 23, 2012
LONG TERM GLOBAL HEAD AND SHOULDERS TOP LIKELY IN PLACE
Virtually every price or technical chart you could care to look at is set up for a significant bearish break very soon. Since this precarious condition appears to be virtually unrecognized the situation could easily result in a sharper than normal break. I remain, however, of the view that we are yet in the early stages of the Major C wave. The technical condition of the market has run far ahead of market price, so at some point there will be a seemingly strong bounce or rally. The situation is very similar to the setup present in May/June 2011. At this point I think we will see a rally equivalent to the June 2011 move, but from lower levels. Indeed, it would not surprise me to see some heavy selling over the course of the next few sessions leading to a short to intermediate term bottom. The rally from that bottom would set up a major selling opportunity.
As I continue to explore the technical condition of the markets, I am continually uncovering new, alarmingly bearish features to the technical setup. Many indexes representing global asset prices are showing long term Head and Shoulders topping patterns. The chart of the Nasdaq Global Market Index, comprised of 1,450 equities from around the world, is but one example:
If the Head and Shoulders pattern is valid, this market has been in the process of topping for over two and a half years. Note that the Fibnoacci time cycle dates appear to affirm a recent right shoulder top. Exponential Moving Averagges are also well positioned for a sudden triple bear cross. The market retraced a perfect 78.6% of the prior decline at the May 2011 top and is positioned now for a C wave decline. The H&S formation targets a measured move to the exact 261.8% Fibonacci extension of the A wave down.
World Leaders Index shows a strikingly similar setup:
In addition there is a parallel channel bounded by the April 2010 and February 2011 highs and March 2009 and October 2011 lows. The overlapping waves tend to suggest a corrective channel which would produce a large decline when broken to the downside.
It's been a while since I looked at the weekly SPX chart since I have been focused on the daily and monthly views. The chart shows some astonishing features that concur with my bearish view of the markets:
Note that the Finbonacci time zones are showing significant correlation at both tops and bottoms. This market is on a time schedule and the next train leaving the station is heading South. I would note that the cycle tops have been preceding the price tops by about a month or so and we may yet see the same thing happen at this top.
I'm also noting the parallel channel bounded by the April 2010 and May 2011 highs and the March 2009 and October 2011 lows. This appears to have given way to a nearly flat parallel channel bounded by the April 2010 and April 2011 highs and the July 2010 and October 2011 lows. This is like a huge aircraft carrier changing course very slowly over time.
There's no head and shoulders formation on this chart, but after retracing better than 78.6% of the prior decline, the A wave down from the February 2011 top projects to a low just shy of the March 2009 bottom.
It's very difficult to find a price or technical chart that is not currently set up for a major bearish break. I'll show just a few here to give you a sense of the precipice that world financial markets are teetering upon.
Monthly SPX to 30 Year Treasury ratio is poised for a break of the very long term uptrend (blue) as well as the cluster of its monthly EMAs. It's also set up as a head and shoulders top:
NYSE is poised for a head and shoulders neckline break that simultaneously corresponds with major highs and lows going back over a year as well as its 200 EMA:
After making another lower high, Percent of Stocks Above the 200 Day Moving Average is poised for a big break below obvious horizontal support:
Volatility Index is poised for a major breakout above long term horizontal resistance and the neckline of an inverse Head and Shouders reversal pattern while the 20 and 50 EMAs provide solid support:
Commodities Index is balanced at clear horizontal support at the beginning of a Major C wave decline:
Copper could crack the indicated support at any time:
Gold appears to have cracked trend and the C wave plunge correcting the entire bull market could begin at any moment:
EuroDollar has been setting up its own Head and Shoulders top of several months. After completing an apparent wave ii triangle today, the plunge to the neckline and a break could come at any time:
The preceding are just a small sampling of the many, many bearishly aligned charts that are available for any analyst or market participant to consider. That these charts are apparently invisible to most at this juncture is further reason to supect that the bear side is the right side of this market.
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