Risk Basing

As expected, European indices fell 7-8% from where they were at the time of the last update. It appears that we are now set to base around current levels and rally towards early next year. This will set-up a top for the rest of 2012. Penetration of 25 November 2011 lows across the indices would negate the medium-term bullish view and set-up a re-test of September lows.

The rally to post-October highs in equities will likely coincide with significant weakness in USD. Below, on a four-hourly chart of USD/CHF, I expect a test of 0.83 or so, in the next 8-10 weeks.

European Equity Markets Most Likely Peaked or Very Close to Peaking

European (and Global) risk assets rallied as expected (although in a much more direct fashion), rising 14-17% in 7 trading sessions. I believe this sets the stage for a tradeable top for a good 7-8% correction into Christmas. I consider this to be a very high probability outcome.

This is a four hourly chart of the EuroSTOXX50, tracing out my projection. What happens after the correction lower is very interesting. My projection now is that we rally strongly in January and all the way into February.

This is a four hourly chart of Palladium, which I believe is about to fall hard. This will likely coincide with USD strength and Risk weakness for the next few trading sessions.

Equity Markets Bottomed

As expected, European markets broke the November range to the downside for a roughly 10% decline. I believe this completes a medium-term correction lower. Markets have now likely established a base for a 20%+ rally into Christmas.

I expect a correction to the most recent bounce, likely to close the "Italy-IMF" gap up - followed by a sustained rally.

European Equity Markets Most Likely Peaked, Further Weakness Likely.

As expected (see last update), European equity markets peaked. I believe they will fall for the next few weeks.

My preferred scenario is outlined on the hourly chart of the Dutch AEX index, below. Following a brief rally, we are likely to accelerate to the downside.

A very strong alternative is much stronger rally from around current levels, of about 7-8%, shown here on the hourly chart of EuroSTOXX 50. In this case, substantial supports (just below current levels) will hold, and we will likely peak towards the beginning of next week.

Longer-term, I cannot see how October 2011 highs can be taken out without substantial weakness first. I consider the probability of further market weakness (greater than 10%) to be very high.

Resuming Regular Updates. European Equity Markets to Peak Soon.

After a very long absence, here I am again.

EuroSTOXX 50 rallied over 30% from September lows. The rally has impulsive characteristics. It appears to be the first impulse that is correcting the August 2011 collapse, with one more upward thrust to follow in mid-2012, from much lower levels (possibly around September 2011 lows).

This is my current roadmap (EuroSTOXX 50, Daily):

The initial "thrust" higher, from September 2011 lows, is finishing. It will likely stall around resistance levels market by the red horizontal line and the green 200 day moving average.

Shorter-term, the wave structure is quite clear. Following what I believe will be the final 4-7% push higher from around current levels, STOXX should reverse and fall a good 15-20%. I expect the turn date to be sometime in the middle of next week.

Equity Markets And Risk Assets To Correct Lower

Most asset markets are completing structures from the Japan earthquake lows. This suggests a move lower of about 10% for G10 majors.

Below is a short-term chart of the German DAX. At the minimum, the structure from mid-April needs to correct. This suggests at least 4% downside ahead.

Spectacular Moves Ahead

Following the February decline, risk markets consolidated with an upward bias, as expected. So far this consolidation is very technical, and is stalling at just the right places.

This is a daily chart of the SP500, with projections carried over from the previous post. I expect the market to move sharply lower very soon, perhaps later on today (Friday) or on Monday.

This is a short-term picture - SP500 on a 15 minute chart. Some more upside is still missing, but "heightened vigilance" is warranted for any signs of a top.

Tentative Sign of Longer-term Peaks in Equity Markets

Equity markets peaked five trading sessions and 1.1% higher than levels indicated in my last post.

The form that the decline in S&P500 took appears reasonably impulsive, and suggests further downside.

Shown on the daily chart below is my projection for the S&P500, which I expect to peak below the previous peak, probably later in the week. What should follow is a rapid decline, likely to very strong supports around the 1225 level.

Equity and Risk Assets Correction imminent

I maintain that equity markets, represented here by the US SP500 index are about to turn around and fall hard. What I believe to be the final (!) (quite a statement!) squiggle higher, towards the top of the proposed 1320-1330 topping zone materialized today.

This hourly chart has the same count as yesterday.

Here I break down what I believe to be the final wave higher. I really struggle to see how this market can move any higher without a substantial correction first.

Equity and Risk Assets Correction imminent

Equity markets, represented here by the US SP500 index are about to turn around and fall hard.

My view is shown on an hourly chart of the SP500, below. I find it very difficult to see the index advancing significantly higher for much longer. My projected topping zone is between 1320 and 1330.

European Banks

This is a daily chart of the European Banking Index (Eurozone specific). Trading since late November 2010 low took shape of a well-defined flat correction. Current levels are pushing against a well-defined band of resistance and internally, the ascent from the January 2011 low (on the back of Portuguese bond sales) looks complete.

I expect this index to drop below the levels of November 2010 and January 2011 in short order. Needless to say, this will drag the rest of the European markets down.