The stage is set.

With a marginal new high in US Financials and broader averages, I am satisfied that the fifth wave is complete. I believe that internals of a large number of assets are also signalling a reversal. Notable among those is copper.

Below is an hourly chart of US Financials (XLF). It is done.

Short-term SP500, illustrated below on a 15 minute chart also signals a reversal. It is possible that we have just done the first wave of five that will make up the final fifth of a larger degree. That possibility is illustrated in gray. I consider it highly unlikely.

If indeed the top has been made at today's high, it will have missed my target range of 1040-1050 by less that 0.53 SP500 points. Now wouldn't that be fun?

Finishing touches

Markets are positively euphoric, and understandably so. Fifth waves of various degrees are in the process of completion, as illustrated on the first chart below (hourly of XLF - the Financials ETF).

The broader averages are also in the process of building final waves higher, illustrated here on the hourly chart of the SP500. Personally, I believe we will continue the grind higher into early next week, towards the previously mentioned 1040-1050 range. However, this rally could also finish at any time now, and I would respect any signs of weakness, for example if SP500 trades below 1015 level, highlighted on the chart. Trading below 1000 would herald, to me, the beginnings of a meaningful correction.

AIG is clearly destined for the Moon, or the Everest at least. So says its CEO, who claims that the company will repay the US Government. As a note, AIG owes $182.5 billion. Its profit in Q2 2009 was $1.83 billion. Assume that it doesn't have a single negative quarter, and turns 100% of its profits to the US Government... and it would take it about 25 years, at the current rate, to repay the loans. Markets are forward looking, but 25 years???

Citigroup, shown here on a daily chart, is finishing its C wave, the internals of which are on the hourly chart below this one.

Citigroup, hourly

Finally, I believe the US dollar is in the process of finishing its diagonal down, pending a mighty move higher.

Weak prospects pt IV

I am sorry I cannot think of a more original title!

Markets are in the process of topping, and I don't think there is long to wait now.

I believe we are now in the process of building the final, fifth wave higher in equity markets, as illustrated below on an hourly chart of the SP500 futures. For SP500, I expect the top to form around 1040-1050 level.

Weakness should be respected, and trading below 1000 ought to be taken as the beginning of a meaningful move lower.

Weak prospects pt III

A new high on the broader averages has been achieved, as expected - illustrated on an hourly chart of the DAX below: Chances are quite high that a fairly long-term high in risk appetite is very close. Any strength, which I do not expect to be particularly impressive, should be used to sell longs and start establishing shorts.

Arguing against an immediate top in equities is the internal structure of US indices. While it satisfies the minimal requirements for a finished move, I would prefer to see consolidation into 1015-1020 level on SP500, followed by a push into the 1040-1055 range.

At any rate, we are talking a difference of about 2-4%, so I would shift all outlooks (long, medium and short-term) to bearish. Finally, it is possible, and in fact likely that we will see divergences between indices, such that some go on to make new highs and others stay behind.

Longer-term, I expect the down move to take us below March 2009 lows.

Weak prospects pt II

The Banking index began its fourth wave correction/consolidation yesterday, shown here on an hourly chart. I expect further probes to the upside, which will get weaker and weaker. It is possible to argue that the move off the level market with a blue "4" is complete, and a full reversal has begun. Arguing against that is the internal structure of the broader averages, illustrated on the next chart of the DAX.
The DAX has entered its fourth wave correction/consolidation. This wave structure is incomplete to the upside (at least a new high is required). I expect this to take most of this week.

Weak prospects

''After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good,'' B. Bernanke, 21 August 2009;

How would he know?

“Our forecast is for moderate but positive growth going into next year. We think that by the spring, early next year, that as these credit problems resolve and, as we hope, the housing market begins to find a bottom, that the broader resiliency of the economy, which we are seeing in other areas outside of housing, will take control and will help the economy recover to a more reasonable growth pace.”
B. Bernanke, 8 November 2007.

The KBW Banking index is in its very well signalled fith wave, shown here on an hourly chart.
I expect this wave to finish later this week or early next week. I will use this index as my guide to when the advance might be over for broader averages.

The internal structure of EU indices appears to be in minor fourth wave consolidations before more upside. I expect the move higher that started on Wednesday last week to end at levels around 3% higher.

Looking out slightly further, I believe we are establishing a top of epic proportions.

Not yet

The bears' time has not come yet.

As mentioned in the last post, I was not happy with the way this decline started. I am now leaning towards a scenario where we make another high, and then come off hard.

Below is an hourly chart of the Banking index (BKX). I believe it is attempting to break out of a fourth wave triangle, which means that it will "thrust" higher about 10%. Needless to say, this means that the broader indices will proceed to make new highs.

The opening salvo

Well, it looks like one of my counts turned out to be correct, and with a violation of the recent range base we began a decline. I am slightly concerned by the very start of this decline, which was not impulsive. However, at this stage I favour further probing of the lows, perhaps marginal new lows beyond those of Monday. What follows afterwards will be telling. I am leaning towards another meak bounce (like today) and then acceleration to the downside. However, I can also see how the market would attempts another run at the highs (but this is highly unlikely).

In short, get ready to short.

Below is an hourly chart of the French CAC40. I favour a 1.5-2% decline followed by a consolidation. The count from the low remains unchanged from the one proposed on Thursday 13 August. Added is a count from the high.

Below is an hourly chart of the Japanese TOPIX. The count is slightly updated to accommodate the "diagonal" fifth wave within the bigger structure. Provided the highs hold, more downside is ahead.

Below is a daily chart of the Australian versus the American dollar. Along with most other currencies, I expect the AUD to fall relative to the USD. AUD will likely be one of the worst performers.

This is an hourly chart of the AUD/USD. I believe that AUD is in the early stages of a multi-month bear trend that will take it to or even below Autumn 2008 levels.

The search for the top

No joy in the bear cave, I can tell you that. On the chart below (CAC40, hourly), the last wave labelled "i" could be the whole of the 5th wave. However, price action off its high does not look impulsive (down)... Which, unfortunately, leads me to believe that we may be in [still!!!] early stages of the 5th wave, having just completed wave i.5, pending its correction, and then more grinding moves higher (into the middle of next week?).

This count is wrong on penetration of what is labelled as "4" - 985.75 on SP500 futures, 5254 on DAX futures and 3436 on the CAC40 (also futures). Also, on penetration of those levels, if it occurs in an impulsive fashion, I would call the beginning of a bear trend.

While I would most certainly not be buying here, outright selling remains a risky strategy. We are yet to have a clean five wave impulse down on an hourly, or even 15 minute time-frame. Once we do, I will be all over it.

It is the final countdown

I must say, I am exhausted. The strength of this rally, its duration and persistence in the face of countless overbought measures is, to me, astonishing.

So I will make yet another call - I do not believe this rally has further to run, and in fact believe that we are going to come down soon and hard.

Below is an hourly chart of the French CAC40, which is similar to most other EU indices. It looks cooked to me.

Adding to the bearish-on-risk view is my count of the USD - I believe that the dollar has bottomed, and is in the early stages of a sustained uptrend that will take it to above 1.25 on USD/CHF (below 1.22 on EUR/USD), and possibly as far as 1.10 on EUR/USD.

Finally for today, copper looks set to correct lower.

Silver topping?

Silver is getting ready for a mighty turn lower, which will likely coincide with a major bottom in the USD and a top in asset markets. Both daily and four hourly charts of silver are signalling a top to me.

Silver, daily chart

Silver, 4 hourly chart

Hanging on the precipice

I believe risk is in final stages of topping, illustrated below on the hourly chart of the Semiconductors index.

Silver topping?

Silver, on an hourly chart below, appears to be ready to fall.

Japanese Stocks (TOPIX) likely topped

Japanese TOPIX, on an hourly chart below, rose in a clear five wave impulse. I believe that the weakness in the index seen on Tuesday 4 August, following a nearly 90% up day in the US on Monday 3 August, heralds the coming top in riskier assets globally.

On shorter-term scales, an impulse down is visible on the TOPIX (not shown). I am therefore establishing the fourth-fifth of the intended short position.

Intermediate-term high in Risk

Stock indices globally are in the process of putting in their medium-term highs. Below is a short-term (15 mins) chart of the SP500 futures. A very clear impulse UP is visible at the very end. I believe it could be the high.

Risk at a medium-term high

Yet more signs that riskier assets are peaking around current levels. Nasdaq (on the chart below) and SP500 both made new highs against substantial negative divergences on 4 hourly charts. I will be seeking to establish the remaining two-fifths of the intended short position sometime this week.

Also, it appears that government bonds in Europe and US have bottomed, and are on their way to lower yields/higher prices.

Here, on the 4 hourly chart of the Japanese TOPIX, a clear five wave impulse higher is coming close to its end.