A quick look at a chart of the SPX shows that price has essentially gone nowhere since October. Essentially there is no trend at this time and there hasn't been since October. Another leg down from a lower high would create a 6.5 month head and shoulders topping pattern.
Today equities have broken out strongly through shorter term resistance. BullBear
traders have been long from the swing bottom near February 5th. We are going to maintain our long positions and give the benefit of the doubt to the bulls. Taking some profits as price enters the described resistance zone in the 1126 area is advisable, but we may want to hold at least half of the position as SPX appears to have forged an intermediate term reverse head and shoulders pattern which projects to 1170 (distance from neckline to head is 65 points added to neckline break).
The price close and 14 day MA of the Put/Call ratio is consolidating at its highs and the close is making a series of higher lows even as the market has rallied. The persistence of fear in the market may make a top elusive until the 14 MA comes down to .80 or lower.
Gold is still consolidating but holding up well. Even during a sharp rally in the dollar today, gold did little worse than consolidate. It also appears to be creating a reverse head and shoulders formation. A run to the neckline to complete the head as indicated in the chart would be the next stage. Then a pullback followed by a rally would form the right shoulder. A similar (much larger) pattern launched the most recent bull run from August to December.
The Euro appears to be undergoing a fairly extensive and complicated bottoming process which could produce a more significant rally than otherwise thought. On the other hand, we cannot discount the possibility that this formation is actually a continuation pattern. A
bull move in Euro would likely power equities to complete the reverse head and shoulders pattern as well as a strong move in gold. The fundamental backdrop appears set up for some kind of news event which gives hope to the market that the European debt crisis is blowing over (unlikely). Today's word was that Great Britain is the new Greece.
The setup appears to be for a rally to a double top or new highs in most markets as the dollar sells off and the Euro rallies. Once the reality of the European sovereign debt debacle reasserts itself, selling may be renewed. This is a process that may take several months. There appears to be significant potential for the US Equities, the US Dollar, US Treasuries and Gold to all act as short to intermediate term safe havens during a period of European instability.
The US long bond looks like it wants to breakout in a setup which evokes the market prior to its 2008 panic run.
It's interesting that the Swiss Market Index has broken strongly to new highs. If a major debt implosion is hitting Europe it would seem unlikely that the stock market of the continent's banking center would be performing so well. Perhaps there is a message here.
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