Stock Market Set to Start the Strongest Part of the Current Decline
Stock-Markets / Stock Markets 2011 Nov 23, 2011 - 01:18 AM GMT
-- The VIX came to rest today at the bottom trendline of the diamond formation, above intermediate-term trend support at 31.63. It remains on a buy signal and may be poised for a breakout above the top of the diamond formation. This is a bullish reversal formation that has the potential 13% failure rate and an average target of approximately 50.00 in the VIX.
Tomorrow is a half cycle turn date in the VIX.
-- SPX stalled today about 20 points short of its head and shoulder target of 1160. It has potentially one more day to bounce before turning lower at the half cycle turn date on Friday. Frankly, it may not bounce all. It can be noted that downside momentum was temporarily lost today, but the SPX was only able to make a sideways consolidation, which remains bearish.
Technically speaking, there is nothing but air between 1188:04 and 920.00. You can see that the declining cycle bottom line at 1122.08 has not offered any support for the SPX in September. I don't expect it to offer any support now.
--The USD remains above its Broadening Bottom trendline near 78.00 and has yet to break through cycle top resistance at 78.47. This has set up a minor inverted Head and Shoulders pattern whose target anticipates a breakout above the prior high at 79.84. This, in turn, may activate the larger inverted head and shoulders pattern with this minimum target of 87.00. The waiting for a breakout may be coming to a close.
-- The Euro has made a week long sideways consolidation of the cycle bottom support at 134.04. It was not able to rally back to intermediate-term trend resistance at 137.22. XEU has approximately 2 more weeks until it reaches its trading cycle low in early December. As with the SPX, there is nothing but air under the head and shoulders neckline at 132.00.
-- USB has made a 77.7% retracement of its decline from 145.74 two 134.85. This is the maximum retracement before looking at alternative explanations of what is going on. Coincidentally, today is one half trading cycle high in the USB. Given that information, a reversal at tomorrow's open would portend a change in trend. Crossing intermediate-term trend support at 140:02 would confirm that change of trend and usher in the bear market in bonds.
In other bond news, the five-year treasury auction produced a yield under 1% for the first time.
-- Gold bounced up today to back test intermediate-term trend resistance at 1712.97. This may be an appropriate place to take some downside profits while gold retraces a portion of its decline. The normal cycle low is still expected on Friday, so we may see a deeper wave b before the retracement wave c finishes between 1735 and 1750. There'll be more commentary as they watch the market unfold in gold.
-- West Texas Crude had a small retracement bounce today, just in time for its next cycle turn. The crude oil cycle is roughly attached to the equities cycle. That suggests both indexes will be going down hand in hand for the next two weeks. However, the decline in oil may stretch until the end of the year.
The Shanghai Index may have put in a half cycle low yesterday at 2396.09. The Chinese stock market remains neutral, pending a cross above intermediate-term trend resistance at 2437.80. While the US and European markets are due for a spanking over the next two weeks, the Chinese market may be a haven for money reaching escape velocity out of European and US equities. A small long position in FXI may be appropriate. I would buy the breakout in FXI above 2536.70 as well. The interesting thing is that the Shanghai index appears to fit hand in glove with the US dollar index going forward.
Regards,
Tony
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