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.