Nomad's Edge

A [Risk] Bearish Alternative

2012-01-18T15:33:00.004Z

I am currently leaning towards a risk-bearish view - that is likely to play out over the next few weeks.

As yet, there are no bearish signals, however the way risk markets are rallying suggests increasing caution.

This is a four-hourly chart of the German DAX, which might be completing a medium-term corrective wave.

The view is similar for the EuroSTOXX 50 - the highs since the November low have been made against sharply diverging momentum indicators.

Markets About To Turn

2012-01-11T12:54:00.004Z

As expected, risk based and rallied (the next day after the last update). It is my belief that risk will rally quite a bit further, possibly into February.

Below is a four hourly chart of USD against the Swiss Franc (CHF). It appears that the structure is very heavy up here, and is setting up for substantial, multi-week weakness.

Weakness in the USD is likely to coincide with a rally in risk and related assets. Below is a chart of the EuroSTOXX 50, which I believe is about to break out of its 12 week consolidation. It is of course possible that we break to the downside, however I find that difficult to reconcile with a weak US dollar. Therefore, I expect the market to break higher.

It appears that AUD has been consolidation most of 2011. I expect quite a sharp spike higher, followed by an abrupt reversal lower in the next 10 weeks.

Risk Basing

2011-12-15T11:47:00.003Z

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

2011-12-07T10:23:00.002Z

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

2011-11-28T09:14:00.002Z

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.

2011-11-09T12:12:00.003Z

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.

2011-10-28T13:54:00.006+01:00

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

2011-04-27T13:15:00.004+01:00

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

2011-03-04T14:51:00.004Z

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

2011-02-28T11:28:00.002Z

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

2011-02-11T19:56:00.004Z

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

2011-02-10T09:51:00.001Z

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

2011-01-19T14:04:00.002Z

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.

Nosebleed

2010-12-13T11:19:00.004Z

On a number of metrics, the "risk ON" trade entered "nosebleed" territory (a lot of inverted commas here). Sentiment indicators reached levels of bullishness last seen at three important points: April 2010, October 2007 and July 2007. Price action from the 30 November low is finishing a structure that needs to correct at least 2.5-3%.

This is a daily chart of the German DAX. Presented on the chart is the most bearish scenario, which I weight at around 50% probability.

This is a daily chart of the US two-year note future, which suggests that rates are likely to fall in the next few weeks (prices higher).

This is a daily chart of the German two-year schatz future, which also suggests that rates will fall in the short-term.

Wave Three Down?

2010-11-16T08:54:00.002Z

If this morning's weakness in European equities continues (and equities do not rally to yesterday's highs), we could see dramatic acceleration to the downside.

This is an hourly chart of the French CAC40, labels are not changed from yesterday.

Air-pocket?

2010-11-15T14:58:00.002Z

By my calculations, risk will either sell-off very hard very soon, or will continue to rally until the end of the week.

This is an hourly chart of the French CAC40. The index fell in an impulsive fashion last week. The move up, so far, could be interpreted as a classic, fast and furious counter-trend zig-zag, pending a move lower, which would be the third wave.

Boom, Boom, Pow...?

2010-11-12T15:30:00.005Z

Asset markets have likely peaked for 10-15% corrections.

This is an hourly chart of the US Energy sector, which at 11.68% of SP500 is the third largest sector in that index. The pattern here suggest that we fall to at least the level of triangular consolidation, marked by blue lines.

This is a daily chart of the Australian index I used on 19 October 2010 to forecast an exhaustive rally. The chart has not been updated but for the actual traded data. It appears the index topped and subsequently declined exactly as expected. This further suggests that the decline will continue.

This daily chart of the Australian dollar against the Japanese Yen suggests that we are topping around current levels. There is an outside chance (about 30%) that we rally to around JPY83 before rolling over.

One of the reasons why I am not expecting declines of greater than 10-15% for major indices is because a lot of Asian indices do not appear "complete" on the upside. They do appear to be ready to enter a prolonged (about 4-6 weeks) period of correction/consolidation. Below is a daily chart of shares in Hong Kong.

Finally, further evidence for a shorter-term top around current levels comes from Japan, here on an hourly chart (Topix). The rally in November is a fairly clear finished impulse, which is most likely a "c" wave. This suggests that supports around 800 will be broken.

Get Ready to Rock!

2010-11-10T09:47:00.002Z

I believe equity index volatility (VIX, on a daily chart below) is about to move substantially higher. This will likely coincide with serious weakness in asset markets across the world.

Pushing on a String

2010-10-28T11:59:00.002+01:00

Markets did indeed peak on Monday, as expected. The quality of the subsequent decline is not impulsive. It is possible that Monday's highs will remain unchallenged, and risk will sell-off from current levels. It is equally possible that we rally once more, to challenge the recovery highs.

Looking at gold (here on an hourly chart), I expect USD to sell-off soon to set-up a base for a sustained rally (gold, non-USD FX, equities to rally). Turning points will once again likely coincide with market events, such as the Fed next week.

Tops in Equity Markets

2010-10-25T08:02:00.002+01:00

Equity markets have likely peaked this morning. The cycle that began in the first days of October is likely over.

This is an hourly chart of the German DAX. At a minimum, I expect a correction to 6350, or about 5%.

Higher, for Longer

2010-10-19T11:40:00.003+01:00

Risk failed to sell-off in the time I thought it would, and this suggests that there is a bit more strength to come, for a little while longer.

This is a daily chart of the Australian dollar in Japanese yen - a very good gauge of global risk appetite. The pair has been consolidating for about a month, and looks ready to move higher, in what I believe will be the final move higher. Under this scenario we top around the beginning of November.

This is a daily chart of the Australian stock index. Since the end of last month, the index has been trading in an ever tighter range, drawing out a beautiful symmetrical triangle. Triangle most often break-out in the direction of the preceding trend, so in this case it will be higher. However, triangles are also usually the penultimate formation in a sequence, suggesting that a sharp reversal will follow the breakout. Again, the picture here suggests tops around the beginning of November.

The Canary In The Coalmine...

2010-09-30T11:08:00.002+01:00

...has choked and died.

This is a daily chart of the Australian stock market index. The picture does not look good. While this (and other) market might put up a bit (about 24-48 hours) of a fight, the game is most likely over.

The Time Is Now II

2010-09-21T11:42:00.002+01:00

Risk and related assets are continuously bid, however this is likely to end soon.

Below is a daily chart of the Australian SPI 200 index future. The move from July lows is a clear corrective zig-zag into the current highs. Technically, this is one of the cleanest set-ups, and with Australia generally being one of the highest leverage plays on the global growth cycle (which is likely to disappoint soon), this is my biggest short.

I anticipate a move lower of about 20% in the next six weeks.

The Time Is Now

2010-09-20T08:40:00.003+01:00

The anticipated rally to challenge August 2010 rally highs has materialised. It is now my belief that broader indices across the world are within 1.5% of what will turn out to be medium-term tops, with said indices falling below their July 2010 levels.

This is a daily chart of US Mid-Caps. I believe the September rally is a final part to the correction that began in early July. This final part is now nearly complete. Shorting everything and anything is advised on any "pops" higher.

Risk Likely Bottomed.

2010-09-01T15:21:00.000+01:00

Equities have likely bottomed for some time.

Asset Markets To Rally

2010-08-23T16:23:00.005+01:00

The previous forecast for an imminent top in risk and related assets was somewhat early, and about 1-3% away from what proved to be the tops.

I am not very happy with how risk sold-off since then, and therefore expect another rally to challenge the August 2010 peaks.

I expect substantial weakness in the Autumn, possibly beginning in early September. This will likely coincide with sub-50 ISM, revisions of Q2'10 US GDP down to 0.8-1.2% and possibly negative Q3'10 GDP in the USA.

This is a daily chart of Microsoft, which I expect to rally strongly (around 12-14%) in the next two weeks.

This is a daily chart of Bank of NY, which I also expect to rally strongly (around 12-14%) in the next two weeks, along with other Financials.

Strength In Asset Markets Likely Over Soon

2010-07-27T14:56:00.003+01:00

The forecast made in the beginning of July, of a multi-week, 7-8% bounce in risk and related assets, has come to pass.

I believe that this strength is likely to be over soon, with a potential for sustained weakness beyond June/July lows.

Below is a daily chart of the FTSE100 index (London). For various reasons, I believe this chart to offer one of the cleanest "counts", where the most plausible outcome is sustained weakness from current levels.

Very Oversold, But Still Room To Go

2010-07-05T11:19:00.003+01:00

On a number of metrics, the current "risk trade" is extremely oversold. Taking G20 equity indices, I believe that a multi-week, roughly 7-8% bounce is quite close. However, both internal structure of the market so far, and slightly longer-term indicators suggest that further short-term weakness is highly likely.

The number of stocks, included in the SP500 index, that are trading above their 50 day moving average is fast approaching levels not seen since the March 2009 bottom and the panic of October 2008. Previously, stocks have always bounced from similarly oversold levels.

There is still a fair bit of room before the market is terminally oversold though, as shown by the number of SP500 stocks that are trading above their 200 day moving averages, in the chart below.

Here on the daily SP500 chart, both the RSI and Stochastics are extremely oversold. The index is alos sliding along the lower Bollinger band. I expect a move lower short-term, followed by a multi-week bounce, as shown by red lines.

More downside?

2010-07-05T11:02:00.002+01:00

So far, the larger “irregular” count I have been following is working out well.

Again, so far, we had a very neat impulse lower in the EZ banking sector. Surprisingly, Spanish and French banks have been noticeably stronger than, say, German or Skandi banks.

That notwithstanding, they have also, on hourly charts, traded beautiful little corrections (abc in lower case on the chart).

This is quite a count… if it is correct, the market will collapse in the next 3-4 sessions.

I expect a bottom to hit around mid-next week.

This is an hourly chart of the Spanish bank Santander:

Fireworks, Fireworks, Fireworks.

2010-06-21T20:23:00.000+01:00

I am now on full alert for rapid declines in risk and related assets.

As suggested in my previous post and pointed at in the accompanying charts, risk and related assets have likely peaked from slightly higher levels from Thursday last week.

I believe that today’s (post Chinese announcement) highs might turn out to be fairly secure stop loss levels for short-risk trades.

It is likely that there will be some form of a retracement (a move higher) in the next 24 hours.

No charts today.

Fireworks Alert!

2010-06-17T11:43:00.005+01:00

The first "Fireworks" alert, last week, was too early and wrong.

I believe we are coming up to the end of corrections higher in risk and related assets that began at the end of May. While attention has been focused on problems in Europe, where Southern Europe significantly underperformed the North due to credit strains, little has been said about dreadful performance of the world's manufacturing and industrial centres.

Below is a selection of Asian indices, all of which are very sensitive to growth in the global economy.

A very clean impulse lower in Australia, with a neat correction higher. This index has also produced the "death cross" on the daily chart (55 day moving average crossing the 200 one from above).

Also a very clean impulse lower in Hong Kong, with a neat correction higher. This index has also produced the "death cross" on the daily chart (55 day moving average crossing the 200 one from above).

Finally, another clean impulse lower, this time in Singapore, with a neat correction higher. This index has also produced the "death cross" on the daily chart (55 day moving average crossing the 200 one from above).

A good proxy for Risk - NZD/JPY is about to finish its correction higher, possibly around the coming week-end.

And finally for today, crude oil is also likely about to finish its move higher very soon.

Fireworks!

2010-06-09T09:01:00.001+01:00

I think risk and related assets are about to get slaughtered. Get ready for something very messy.

Market is likely to break lower from current levels

2010-05-28T11:55:00.002+01:00

I believe that we are approaching the end of the correction that began on Tuesday of this week.

Risk and related assets will likely sell-off soon.

Kiss of Death?

2010-05-21T17:46:00.005+01:00

First, my alternative, temporarily bullish count. On a number of metrics, this market is extraordinarily oversold. Usually, this would lay the foundation for a healthy rally. To accommodate this scenario, I propose an eminently probable count.

On this hourly chart of the CAC40, we may have just finished the "B" wave, pending a near vertical rally to just above (or so) the levels we saw after EU-TARP was announced. If so, it would be a wonderful shorting opportunity!

Following the biggest market drop since March 2009, the market is, I believe, retracing to the broken trendline. This is also known as the "kiss of death".

I expect the market to fall away from this point. In addition, should today's lows be taken out on the major indices, (where those lows coincide with the "flash crash lows" of May 6), the bottom is likely to fall out of the market.

This is a daily chart of the US Energy Sector, which today touched the underside of horizontal resistance in red.

This is a daily chart of JPMorgan, and the chart looks very similar to that of the whole US Financial sector. Today, the stock touched the underside of the broken trendline, in red.

Crossroads

2010-05-19T19:41:00.002+01:00

The market is at a crossroads.

If we take out the lows of today, the market is likely to fall in a waterfall, wave 3 decline. If the market takes out yesterday's highs, it is likely that we go on to challenge post EU-bailout highs in wave C of II (or B).

I lean strongly towards an immediate breakdown for a number of reasons. A few of those are time cycles, a number of large cap stocks in G10 are very weak, and the low today has been made in a three-wave corrective spike, suggesting that it was a "b" wave of an irregular correction, pending more downside.

Correction Higher Is Likely Over

2010-05-13T08:49:00.002+01:00

The aftermath of the "flash crash" and the European debt crisis is long forgotten, as markets are challenging strong resistance levels (highlighted by the red line in the hourly chart of the SP500 futures in the chart below).

The entire advance from the "flash crash" low appears to be taking shape of a zig-zag, with several hallmarks that define such structures: a) very sharp movements; b) wave "a" and "c" equality; c) diminishing volume relative to the impulsive move that preceeded it; d) retracement of the "extension".
It is therefore my belief that global equity markets are about to take the turn for the worse imminently (within the next 2-3 trading sessions).

Corrections Higher Likely Finished

2010-05-11T18:35:00.001+01:00

It is likely that the bail-out induced euphoria will very soon give way to dispair, as equities turn around and head lower.

This is an hourly chart of the US Mid-caps, which highlights a very technical, so far, corrective zig-zag higher. I believe it is about to reverse.

Fool's Gold - Sell This EU Spike

2010-05-10T17:15:00.003+01:00

Markets have taken a few Ecstasy pills and are seriously high. I do not think this will last.

Major European and US averages traced out beautiful corrective zig-zags to the upside. Similarly, the time-old market indicator - Copper is also quite weak today, and is likely finishing its correction higher.

Finally, Asian indices have not at all participated in this rally, even though they fell a fair bit in line with Europe.

In short, go SHORT.

Correction Underway

2010-05-06T10:54:00.002+01:00

Markets complied with very strong indications of reversals.

Currently, it appears that the moves from end of April highs are coming to an end. It is quite likely that we consolidate for a few days, then make one more low, and then consolidate for much longer.

It appears that EUR and CHF are basing against the USD.

The Fun Ought To Continue Soon

2010-04-23T15:24:00.005+01:00

Last week, the "fun" started shortly after my post.

On cue, Emerging Markets sold-off having finished their impulsive ascent from February lows. Currently, this instrument appears to have finished the correction higher, and should carry on lower soon.

Similarly, the US Broker-Dealers' index (where Goldman Sachs is the largest component) also appears to have finished its correction higher, and ought to fall imminently.

And finally for today - the Real Estate sector in the US. The pattern could not get any more perfect. This particular market is about to sell-off very hard.

The Fun Ought To Begin Soon

2010-04-15T14:10:00.002+01:00

Since Easter, European markets have stalled, and are effectively flat. US and some Emerging Markets are moving much higher. I continue to believe that this is not going to last.

From wave analysis:

The CRB index is ready to fall in a rather rapid third wave decline:

Emerging Markets moved to new highs (as forecasted all the way back in February 2010) in what appears to be a finished impulse:

The quality of this rally [specifically in Europe] remains very poor. Since the March’09 lows, there has been no price thrust that remained out of reach of a subsequent correction lower. However, the latest rally (from February’10 lows) appears to be impulsive. While this strongly points to a coming multi-week correction, it also suggests an absence of imminent collapse. I believe the most likely scenario will be one of extended range trading, as what I expect to be the final zig-zag forms.

From other indicators:

This rally is becoming more and more speculative in nature, as total volume on the NASDAQ is running into record territory relative to that of the NYSE:

Sentiment is in record bullish territory: according to CBOE never before have so many calls been bought relative to puts. At the same time, ISE Equities only index’s moving average measure is moving in on levels last seen in July and October 2007.

Relative to historic norms, the market is under pricing near-term (1 month) volatility relative to medium-term (3 month) volatility, as shown by the blue line in the chart below (ratio of VIX to VXV).

It is often said (past couple of months) that the market’s internals are very strong, as shown by the ever rising cumulative advancing-declining issues count, shown below. It also true that major tops during the XX century have all been accompanied by deterioration in breadth. This does not rule out a decline of about 10-15% now, followed by an advance, by most US averages to new highs, this time not accompanied by a rally to new highs by the AD line. This is how the top formed in 2007.

Finally, the McClellan oscillator has shown negative divergences prior to all market tops. It is doing so now:

The End-Game

2010-04-05T16:56:00.004+01:00

Nothing like being two weeks (so far) early in calling a top to dent one's confidence, but as Chuck Prince said: "While the music is playing, you have to get up and dance - we are still dancing" - got to keep dancing!

Only thing is, I firmly believe that the music is about to stop, at least for a few weeks. On a number of metrics, including put/call ratios, VIX/VXV ratios, recent to older advancing/declining issues ratios - the market is as, if not more overbought than at a number of intermediate-term tops since at least 2000.

There are a couple of counts that I am following for major equity markets.

The only way in which they differ is where wave 4 ended and what I expect to be the final advance began. In either case, the most bullish projection that I can come up with extends to about 1200, and then comes off hard.

Both of the charts below are hourly S&P500.

Why I Am Confident Equity Markets Will Sell-Off.

2010-03-18T15:36:00.013Z

Big title, big post (a lot of charts).

While US indices are making new highs, pushing bullish sentiment to vertiginous highs, most global markets are stalling below important resistance levels. To wit:

Below is a GDP-weighted composite index of stock markets of countries listed above. Combined, their GDP is 90% that of China (in nominal USD) - so this is no small fish. The declines so far have been impulsive; rallies corrective. Of further note is the fact that the 55 day moving average now crossed the 200 day one from above (bearish).

This is a daily chart of the eurozone banking sector. Note that the (so far) three-legged (hence corrective) recovery off the February 2010 lows is stalling under the resistance line in blue - the previous multiple supports. This is in stark contrast to the US banking sector, which is making new recovery highs. Should the EU index fall away from the blue line, it will likely fall rapidly and far.

I now highlight a number of European industrial stocks.

This is a chart of Germany's third largest company - Bayer. A very clear impulse from the highs has so far been retraced in a three wave move. This stock is breaking lower through some short-term supports (the red line), and will likely fall further.

This is a chart of Germany's Thyssen-Krupp, where the outlook is very similar to Bayer. A clear impulse off the highs has so far been retraced by a three legged correction. The red line here highlights multiple resistances against which the stock is stalling. I believe this will fall soon.

We now move onto some of the largest names in the Emerging markets, titans of industry, all with over $50 billion market capitalization. All of them have impulsive declines, followed by very technical, corrective retracements, suggesting of further downside.

Banco Bradesco

Banco Itau

POSCO

Taiwan Semiconductor

Tops In Risk Are Very Likely Here.

2010-03-17T11:27:00.003Z

European equity market indices are between 0.6% and 1.6% higher than closing levels of Friday 5 March. From here, I believe that risk will start to sell-off.

Here is an hourly chart of the DJ EURO STOXX 50 index. It appears that the correction higher that began over a month ago on 5 February is over.

This is a four-hourly chart of the Australian Dollar versus the Yen. With weakness in risk, I expect this cross to sell-off hard from current levels.

Correction Higher In Risk: Correction Over

2010-03-15T12:21:00.006Z

Equities and other risky assets will likely sell-off hard fairly soon. I consider it highly unlikely that sustained upside progress can be made.

Below is a daily chart of the German DAX. This is my count and projections, unchanged from January 2010.

This is an hourly chart of mainland Chinese large caps traded in Hong Kong (the H-shares index). This index is weaker than the Hang Seng, and failed to take out the resistance highlighted by the red box. From Elliott Wave perspective, the rally from February lows has been corrective and is very likely over at current levels. This index is putting in a massive, massive top. All this for the companies that cater to the market that will save the world in 2010???

Flying PI(I)GS.

2010-03-08T15:10:00.006Z

Contrary to their Northern brethren, Portugal, Italy, Spain, Greece and Ireland peaked in October 2009. What followed is now history, and it is widely claimed that Greek problems will be contained.

Below is a GDP-weighted composite index of stock markets of countries listed above. Combined, their GDP is 90% that of China (in nominal USD) - so this is no small fish. I present my favoured scenario in this daily chart. The declines so far have been impulsive; rallies corrective. Of further note is the fact that 55 and 85 day moving averages are falling, and the 55 day one is about to cross the 200 day one from above (bearish).

An alternative scenario for this funky group is presented below. While it is certainly possible that PI(I)GS will fly in what would be a massive "C" wave higher, I consider the outcome unlikely. This will change should we get closes above January 2010 levels, which would confirm the move since October 2009 as an ABC correction lower, pending further upside.

Correction Higher In Risk: Correction Is Likely Finished

2010-03-08T10:10:00.006Z

How poor is the outlook for equities? Very, very poor. It is a disaster waiting to happen. Risk and related assets are likely to face substantial difficulties moving higher, and will most likely move lower swiftly.

Below is a daily chart of the German DAX with my projections from 15 January 2010. So far, everything has been unfolding according to plan. If this continues to be the case, for which there is ample evidence, I believe we will see this index about 20% lower in the next 5 or so weeks.

This is an hourly chart of the Hang Seng Index in Hong Kong. It is currently trading at levels first achieved in August 2009 - fully eight months ago. As you can see, the index is firmly parked in a range (highlighted by the black box) that acted as support and resistance during those last eight months. From Elliott Wave perspective, the rally from February lows has been corrective and is very likely over at current levels. This index is putting in a massive, massive top.
This is an hourly chart shares of mainland Chinese large caps traded in Hong Kong (the H-shares index). This index (also shown on a daily time frame on the last chart in today's post) is weaker than the Hang Seng, currently trading below the price range, highlighted by the black box, that acted as support or resistance since August 2009. From Elliott Wave perspective, the rally from February lows has been corrective and is very likely over at current levels. This index is also putting in a massive, massive top. All this for the companies that cater to the market that will save the world in 2010???

H-shares index in Hong Kong is about to put in a "death cross" of 55 day moving average moving below the 200 day moving average for the first time since March 2008.

Correction Higher In Risk: Correction Is Likely Finished

2010-03-05T13:06:00.002Z

Corrections higher, that began on 5 February 2010, have likely run their course. Risk and related assets will likely come under pressure from today onwards.

Marginal new highs (above this week's highs) are possible for most global indices, however I consider the likelihood of sustained upside to be very small.

No charts today.

Correction Higher In Risk: Completing The Correction

2010-03-03T15:49:00.004Z

The markets have moved in an orderly and expected fashion, where "thrusts higher" materialised from "lower bases". The strong to very strong rallies I expected last week are likely in their final stages. Their highs around the end of this and beginning of next week will set us up for mighty declines.

Below is an hourly chart of the German DAX. Since the highs in January, this index (along with most others) behaved in a very technical manner, and this morning reached the long-standing target (since 9 February) of 5800. If my outlook is correct, this rally should end in the next few days.

Correction Higher In Risk: Correcting The Correction

2010-02-24T20:17:00.004Z

The outlook right now is less clear than it has been for the past six weeks. I do not think that the decline from January to February has been corrected, and therefore expect more "thrusts" higher. At the same time, I expect those "thrusts" from a lower base, perhaps from around the levels of the February low.

Below is a four-hourly chart of the Nasdaq100. I think it could easily drop to February lows (-5%), and then rally back to the highs of this week to complete the correction. In October/November 2007, this very index travelled up and down around 5.5% in 11 trading days (second chart, below). At the time, the VIX was trading around 20%, same value as today.

In short, I cannot see prices breaking down into a waterfall decline before more corrective action is seen.

Nasdaq100, four-hourly

Nasdaq100, hourly, October/November 2007

Weakness In Risk And Related Assets

2010-02-22T16:13:00.005Z

Some part of correction higher in risk and related assets has likely ended. It is now very likely that equities, Japanese Yen crosses and other instruments correlated to Risk will sell-off.

One characteristic of the multi-week rally in risk that I proposed on 5 February has been an extremely uneven pace of recovery. Some indices made new highs (Swiss Market Index); others have retraced over 2/3 of their declines (the majority of US indices); while others have barely managed to take out 1/3 or their declines (most Europeans, and particularly the PIGS). This, of course, hints at a lack of breadth, on a global scale. To me, it also suggests forthcoming weakness.

At the same time, breadth hasn't been damaged to an extent that suggests imminent vicious declines. I expect to see a re-test of February lows, and then a strong to very strong rally before we can talk of a multi-month top.

Below is an hourly chart of the Spanish IBEX. A re-test of the lows seems to me to be a done deal here.

This is an hourly chart of the Italian MIB. Not much to build on a bullish case here either.
Finally, an hourly chart of the German DAX. While stronger than its Southern European peers, this index looks very tired at current levels. At a minimum, I expect it to decline to the middle of the consolidation centred at 5500.

Correction Higher In Risk: Correcting The Correction

2010-02-17T16:22:00.003Z

BOTTOM LINE: Risk and related assets have likely completed one leg of the ongoing correction higher. We will now likely see softening in risk appetite, which could take the whole of this week. I do not anticipate a significant breakdown in asset prices yet.

This is a four-hourly chart of the German DAX. I believe we are about to begin correcting the correction, which will produce a messy, erratic and volatile range.

This is a four-hourly chart of the mid-caps index in the USA. Mid-caps (and tech) have been much stronger than blue-chips, which suggests that substantial weakness is unlikely in the near-term.

Correction Higher In Risk

2010-02-16T10:31:00.002Z

BOTTOM LINE: The anticipated weakness in Risk and related assets did not materialise, as risk corrected in a sideways, triangular way. That has likely been a "B" wave of the whole correction, and I now expect strength in wave "C".

Below is a four-hourly chart of the German DAX. I am surprised at how weak corrections higher in European indices have been so far.

Correction Higher In Risk

2010-02-12T09:48:00.001Z

BOTTOM LINE: Equities and related risk assets have likely completed some stages of their corrections higher. I believe it is now likely that weakness reappears.

No charts today.

A Multi-Week Advance Has Likely Begun

2010-02-09T19:07:00.006Z

BOTTOM LINE: Last Friday's low did indeed turn out to be a low of some kind. Whether this low holds for a few weeks remains to be seen. For now, provided this Monday's lows hold, I consider the likelihood of a multi-week rally to be very high.

For all my bullishness, I am very careful at these pivotal levels. Should markets show weakness, particularly below levels we saw only yesterday, I would shift to a neutral stance.

Below is a four-hourly chart of the German DAX. In the next few weeks, this index could rally all the way to 5800.

This is the Straits Times index from Singapore. A very clear impulse can be seen from the highs. It is likely that some time and further price appreciation will be needed to clear the oversold condition.

This is an hourly chart of the Australian ASX index. Being a highly sensitive economy to the global growth cycle, Australia merits particular attention. The charts are extremely clear for this index, and suggest a strong rebound.

Stocks remain deeply oversold on a number of metrics, one of which is the number of stocks trading above their 50 day moving averages. As can be seen from the chart below, stocks are now more oversold than at the ends of two major corrections to the March'09-January'10 rally. While this and other breadth indicators could fall further, I consider the possibility remote.

The Call-Put ration spiked to a level associated with major market bottoms, and has since turned. Again, it is likely that some degree of price stability is ahead.

The Lows In Risk And Related Assets

2010-02-05T10:25:00.004Z

BOTTOM LINE: The sell-off that began in the second week of January 2010 is likely coming to its end around current levels. I expect there to be a multi-week advance or at a minimum expanded range trading, with some indices challenging their recovery highs.

Below is a 4 hourly chart of the German DAX. The index fell in a beautiful five wave impulse from the high of the move, with very clear internal structure. The final drop, which started at 4 is almost over, and a fifth wave low is expected shortly (today-Monday).

On a number of metrics (for example SP100 percentage of stocks above 50 DMA and the McClellan Oscillator, both below), the market is now more oversold than it has been at the July 2009 and November 2009 lows, and nearly as oversold as in March 2009. Therefore, I expect a rather strong bounce, of about 5-8% in major averages.

Banks

2009-12-15T17:50:00.002Z

It is "lights out" for Financials.

Below is a daily chart of a capitalisation weighted index of JP Morgan, Bank of America, Wells Fargo, Citigroup and US Bancorp - the largest banks in the USA. As is clear, a very bearish pattern has been activated. I am not sure how long the joke of broader indices at or near the highs will last, but either banks rally hard, or indices come down.

Suspended in Disbelief

2009-12-15T10:05:00.005Z

This is all getting rather boring. US large-caps are just about the only markets that are pushing towards new highs. EU markets are not, where stronger indices remain about 2% below October highs (DAX) while weaker ones are over 7% below those levels (Italy's MIB). Neither are Asian nor other Anglo-Saxon (Canada & Australia). Overall, I think October highs should provide cast iron ceilings for equities, and they will roll over soon.

This is a daily chart of the German MDAX (German mid-caps, excluding technology, that didn't make it into the DAX 30). Since their October highs, the mid-caps underperformed Germany's blue-chips. The risk is clearly to the downside, with stops above December and November highs.

This is a four-hourly chart of Australia's ASX200 index. It would be particularly sensitive to a China-led recovery. This index made no progress since the October highs, and remains over 5% below those levels. In addition, it looks particularly bearish from a wave perspective.

This is another index that should be quite sensitive to appreciating commodities - Canada's. While stronger than Australia's, Canada's index remains an underperformer relative to the US.

Road Map to Disaster

2009-12-11T10:58:00.004Z

Stocks world-wide are looking increasingly weak. Banks and other financials are particularly weak.

This is a daily chart of the European Banking Index - and it does not look pretty. Last Friday (US payrolls) highs should act as very strong resistance (those levels are about 4.5% higher right now), and this index ought to fall to its 200 day moving average, about 16% lower.

This is a weekly chart of one of the BRIC darlings - Brazilian Petrobras. With over $200bn market cap, this is one of the largest companies on the planet, and it, too, does not look good.

Shifting Gears

2009-12-10T12:21:00.003Z

BOTTOM LINE: This week's price action in European stock indices suggests that they have topped for this cycle, and will continue lower after a brief (up to 48 hours) correction higher.

Below is an hourly chart of the German DAX. From the high last Friday (US Payrolls day), the DAX fell in a clear impulse. I believe that the high last Friday finished a corrective structure in play since the 3 November low. This means that a new impulse is unfolding, which should soon take out that November low (5316, or 6.7% lower). DAX is one of the stronger EU indices; Italy's MIB is much weaker, and is perhaps a better candidate for a short.

Crunch Time pt II

2009-12-04T11:33:00.003Z

BOTTOM LINE: Financials have likely peaked for this cycle, and remain dangerously close to crucial supports. These supports will likely break, pulling down the broader indices.

Below is a daily market cap weighted index of JP Morgan, Bank of America and Wells Fargo. The neckline of the head and shoulders top that took four months to form is about 2% away. I think breach of neckline supports is very likely, and should that happen, there is little in the way of supports until July lows. Not pretty at all.

This is a daily chart of the KBW Banks Index. So far, it is moving exactly according to plan, and yesterday's Bank of America news highs should provide very strong resistance. In the event of a bounce, those highs should be used as stop loss levels. Should those highs give way, a more complex correction is likely unfolding. I do not consider an upside break likely. Targets for this index remain about 12% below current levels.

Home Run

2009-12-03T10:34:00.002Z

BOTTOM LINE: Not long to wait now for risk and related assets to start falling. Equities will fall, USD, government bonds and volatility will rise.

This is an hourly chart of the KBW Banking Index (BKX), shown with this very count on Tuesday 1 December. I see Bank of America (BAC) up about 3% following their announcement that they will repay $45bn. This would be enough to take the BKX higher by about 2%, given BAC is the largest constituent at 9%... and it would then come to the perfect zone of between 44.50 and 45.50 where the whole correction from 3 November 2009 should end. This will likely mark the end of wave II or B, which in either case would result in a move lower of at least the same magnitude as the October sell-off, which was 12.5%.

Banks

2009-12-01T15:57:00.002Z

BOTTOM LINE: Banks will not do well. On shorter term charts (below is an hourly chart of the BKX - KBW banking index), ideally, we see a move higher to challenge today's highs. This would complete the corrective structure from 3 November 2009 lows.

Crunch Time

2009-12-01T13:39:00.006Z

BOTTOM LINE: Risk and related assets retraced between 50% and 76.4% of their post-Dubai declines. The retracements so far, look corrective. Currently, pivots lie about 1.7% either way of the market. That much lower, and the corrective nature of the most recent rally is confirmed. That much higher, and 2009 cycle highs are exposed. For a host of reasons, I think that we break to the downside.

Here is an hourly chart of the German DAX. The rally following a very neat "Dubai" impulse lower is clearly corrective so far.

For technical "geeks": I count the impulse from early November lows to have finished at what, for most indices, is a secondary, later, lower high on 25 November, not an earlier high of 18 November. Of the major global indices, only the DJI managed to break the 18 November high.

Below is an hourly chart of SP500 futures. The count in purple was made 3 weeks ago on 11 November, and the final purple "5" never materialised. I think the red "5" took its place, and is a failure in all but the Dow.

Roast Pork

2009-11-30T10:20:00.003Z

BOTTOM LINE: Collectively, Portugal, Italy, Ireland, Greece and Spain are 1.3% above important, multi-month long head and shoulders neckline support. Italy is already through that support. Medium and long-term tops are very close for most asset markets.

Below is a weighted daily chart of stock indices of Portugal, Italy, Ireland, Greece and Spain. This is a very, very bearish picture, and it will likely resolve to the downside fairly soon.

Divergences

2009-11-24T12:26:00.004Z

BOTTOM LINE: Some indices took out their November highs (DJI), some are hovering around those levels, and some have retraced about 62% of last week's drop (expected), and some couldn't even manage that (Italy). On the one hand, this week is very positive, from a seasonality point of view. On the other, patterns on medium- and short-term charts appear bearish. This warrants a cautious bearish stance.

This is an hourly chart of the SP500, with projections as they were made about two weeks ago. The Monday rally to challenge November highs appears to have taken an impulsive shape, which suggests that it could be a failed fifth wave higher, as originally projected. In any case, upside is severely limited. Downside remains large.

This is a daily chart of the Italian index, and it is very weak. So far, the corrective rally retraced less than 50% of the decline last week, and thus this index is a prime candidate for a short.

PIIGS!

2009-11-20T14:11:00.004Z

BOTTOM LINE: Western equity markets sold off in what appear to be impulsive waves from their November highs, suggesting that yet another top might be in. This has bearish short and medium term implications, while allowing for a brief (48 hours?) correction higher of about 2%. These corrections, if they materialise, should be sold into.

Below is a daily chart of the Italian stock market index. For a lot of reasons, I believe that it is unlikely to see 2009 year highs for a long, long time. The index is trading below the ascending trendline, in blue; it has been unable to hold above the 55 day moving average; the length of its "C" leg (from red "B" to red "C") is related to the length of the "A" leg (from red "V" to red "A").

I will use any bounce, if it happens, to increase short exposure to this index.

This is one of my favourite synthetic indices. It is a market cap weighted index of Portuguese, Italian, Irish, Greek and Spanish indices (abbreviating to "PIIGS"!). The analysis here is the same as for the Italian index, except here the patterns are even better. PIIGS account for 25% of EU GDP, and their stock market indices are going down hard.

Really Vulnerable

2009-11-19T11:41:00.002Z

BOTTOM LINE: Evidence is mounting that asset markets are getting ready for some serious corrections in favour of the USD and against everything else!

EuroSTOXX50, on an hourly chart below, could still mount a ~3% rally that I believe would be final for this cycle. However, I must stress that the structure from November lows is now complete, and could very easily fall apart here.

Same applies to the SP500, shown here on an hourly chart. While a new high for 2009 would be most welcome, it doesn't have to materialise - stocks could fall from here, and patterns would still look great. Any strength into 1120 should be sold into, in my opinion.

Vulnerable

2009-11-18T13:32:00.003Z

BOTTOM LINE: Risk is vulnerable on the downside.

SP500, on an hourly chart below, has followed projections well. The last leg higher is a little short, and might therefore extend for a bit, however, the risk is now very much on the [extended] downside.

DAX failure?

2009-11-16T17:23:00.003Z

BOTTOM LINE: There are signs of a top in European (and specifically EURO area) equity indices.

Below is an hourly chart of the German DAX. I think chances are high that an impulse that began at the November 5316 low is very close to completion. This should result in, at the very least, a correction to that impulse, which could take us about 4-5% lower from current levels. I believe, however, that we are setting up an intermediate term top.

2009-11-16T14:15:00.003Z

BOTTOM LINE: So far, equities are moving along the lines established last Wednesday. If these patterns are to play out, I expect a volatile week (it is OPEX!), as waves 4 and 5 complete. There is a chance that for European indices, waves 4 and 5 have finished.

This is an hourly chart of SP500 e-mini futures. The structure is maturing, and will soon be ready to reverse down.

Short and Caught?

2009-11-11T11:56:00.003Z

BOTTOM LINE: Well, what do you know, the broader US market is at new highs for 2009. It is led by blue chips and large caps. It is held back by European indices, small and medium caps, financials and other "canary" sectors. I honestly cannot be buying here, but it is likely that we advance a few percent further, and therefore have to prepare for that.

Below is an hourly chart of SP500 e-mini futures, and I offer a bullish count. While I expect some consolidation around previous highs, it is highly likely that we see 1120 or so tested soon.

Crude Oil (on a daily chart below) will now finally get a chance to make that much needed new high above $82 (with a scope to extend as far as $86). Since peaking at $82 on 21 October, it has traced out a triangle pattern, which should resolve to the upside. I expect Oil and risk to peak together, sometime next week.

Correction higher (now even) close(er) to completion

2009-11-10T11:12:00.004Z

BOTTOM LINE: Corrections higher in risk and related assets are likely very close to completion. While major US indices advanced about 1.5% higher than expected, EU indices, notably EURO area indices are moving along the expected lines. Internal structures of these indices suggest that the next leg of the decline is imminent.

Below is an hourly chart of the Italian MIB index (Italy is seventh largest country, in GDP terms - one below the UK). The MIB has been much weaker than most EURO area indices, and currently retraced just about 50% of its 11.3% decline. The internal structure of the decline and subsequent rally appears to conform very well to wave guidelines, with the correction finishing (?) with a clear impulse higher (15 minute chart below the hourly chart).

This is a very short-term, 15 minute chart of the Italian MIB.

Correction higher close to completion

2009-11-09T13:04:00.002Z

BOTTOM LINE: The expected correction higher is in its final stages. Risk and related assets should turn lower today/tomorrow.

Below is a daily chart of the German DAX. The expected correction materialised, and is very likely close to completion. I now expect weakness that should at least test the Friday 30 October low. It is also highly likely that that low will be breached and we head much lower.

Fireworks

2009-11-06T10:33:00.002Z

BOTTOM LINE: The minimum conditions for a correction higher in "risk" and related assets have been met. It is now highly likely that we will see substantial moves to the downside.

Below is a four hourly chart of the SP500 (futures, including GLOBEX sessions). I believe that equity markets across G10 will sell-off. It is possible that we have only just finished building the first part of a longer (in time) correction higher in risk. Under this scenario, we will see volatile, overlapping price action for a few days, followed by a final attempt at the 1060-1070 level, possibly into the end of next week. However, looking across other markets, notably FX, where the USD is set to strengthen substantially, I believe that the impending sell-off will easily take out last Friday lows, and rapidly continue lower.

Right Shoulder pt IV

2009-11-05T11:12:00.004Z

BOTTOM LINE: Expected corrective strength in "risk" and related assets and corrective weakness in USD materialised. I expect these to continue into early next week, as the "right shoulder" is market on the charts. This will set up the plateau for some serious weakness into end of November and December.

Below is a daily chart of the German DAX. This index, along with most G10 equity indices, will probably correct higher for the next few days. Given the nature of the decline from the October 20 top, it is very likely that another sell-off is ahead of us, which should be at least as big in terms of price as the first one. Longer-term, it is likely that the bull market of 2009 is over, and prices will work their way towards and beyond March 2009 low.

This is a daily chart of EUR/USD. It is likely that EUR topped against USD, and will trade substantially lower into December.

This is a daily chart of Crude Oil. As I repeatedly said, I expect at least a marginal high above $82, possibly extending to $85. This will likely happen soon, and set up a plateau from which crude should decline back to at least $65. In all likelihood, this will add as additional pressure on equities, and will coincide with a strengthening USD.

Right Shoulder pt III

2009-11-02T10:56:00.004Z

BOTTOM LINE: The market was very weak on Friday, unexpectedly so. This reinforces the case for a substantial shorter-term rally to ease off the oversold condition. This rally could last most of this week, and possibly into mid-next week. Action last week substantially increased the odds that a medium-term top is in. There is now a possibility that a long-term top is in as well. Should the markets rally along expected lines, a very neat "right shoulder" would be built - likely to be recognised by a greater number of market participants.

The German DAX, shown on the daily chart below, will likely rally for some time. I cannot see this rally exceed 5700, and expect it to end between 5600-5700. Similarly for the SP500, I expect the topping range to be between 1055 and 1070.

A rally in risk and related assets will likely coincide with about a 10% rally in crude oil. If oil were to top around current levels, without making at least a new high above $82 (2009 high), it would look unfinished and "strange" on the charts... much like I thought stock markets would look had they topped in late September.

Cycles in ISM PMI

2009-11-01T20:56:00.001Z

I would like to share some ideas that I have been following for a while and lately modelled developed myself on the cyclical nature of oscillations in the Purchasing Managers' Index, measured and published by the Institute of Supply Management in the US. While this will be the main point of the post, I will briefly give some background to the study of cycles in Economic activity.

It is of course known that the business cycle influences just about everything in the economy. Mainstream economics primarily focuses on inventory cycles and frequently accompanying cycles in monetary policy. These usually last no longer than 3-5 years. However, mainstream economics tends to ignore fairly apparent cycles that span decades. Brian Berry described and analysed roughly 30 year cycles in US economic activity, centred around infrastructure investments and capital stock replacement. For more information, please refer to his brilliant book (Long-wave Rhythms in Economic Development and Political Behaviour, 1991). In the future, I will aim to write up a brief introduction into his work and illustrate with examples by analysing roughly 30 year cycles in US Industrial Production (IP). For now, I will just say that there is some evidence that a 30 year Berry cycle finished with a collapse in US IP into June 2009. A new 30 year Berry cycle has thus likely begun, and will be most similar (again, for reasons which I will aim to elucidate in the future) to the 1921-1946 cycle. Note that the cycle that has just begun will be most similar to the one that spanned the Great Depression and the second World War. If this analysis is correct (and it was very useful to predict both the downswing in 2000, upswing in 2003 and the most recent collapse), then we can expect an early peak in US IP, likely around 2012, followed by bleak "teens".

Now on to the ISM PMI.

First, the charts. As mentioned above, I see US economic activity unfolding in cycles roughly 30 years in length. The most recent cycles are 1980-2009 and 1946-1980. These cycles are clearly evident in US IP data and in ISM figures (chart 1)

Chart 1: ISM PMI 1946-present

The chart presents two complete time series: ISM PMI levels from 1946 to 1980 in red and 1980 to 2008/9 in blue. Major peaks and troughs are clearly aligned. The last drop in the blue line came earlier than expected, but was well telegraphed by IP charts and other indicators. What is important now is that the very sharp rise in the index since December 2008 (shown in green on the far left of the chart - the third and incomplete time series) probably signals the start of the new cycle.

Interestingly, the cycles above can each be divided into three roughly equal (in time) parts, of about 10 years each. It makes most sense to compare like with like, so I will compare the 10 year cycles that began their respective 30 year cycles. However, comparing 10 year cycles that are in the middle of the longer cycle with each other or even with other 10 year cycles (placed elsewhere in the longer cycle) yields similar results - major peaks and troughs overlap.

Chart 2: ISM PMI (selected) 10 year cycles

Chart 2 shows three complete time series of ISM PMI: 1946-1958, 1980-1991 and 1991-2001. It also shows the incomplete cycle that began in December 2008. It is again clear that major peaks and troughs align across the cycles. What is of note is that cycles that begin their respective higher order (30 year) cycles, such as the 1946-1958 and 1980-1991 cycles experience deeper retracements to the initial surge off the cycle low, compared to the 1991-2001 cycle (which is in the middle of its higher-order 30 year cycle).

According to the cyclicality thus established and demonstrated, we can expect either protracted stalling of ISM PMI around current levels (basically, hovering around 50) for the next 12-15 months or, with higher probability, a rather deep retracement, possibly as far down as low 40s or high 30s. Needless to say, this will be a very big surprise to risk and related markets, which are priced for a rather ambitious 3.5% or so growth for 2010. Again, if the economy proceeds to develop along the lines that are typical, we should expect the ISM PMI to drop into late 2010, and then rise into mid 2012. After that, we should have anaemic "teens".

In summary, we can expect continuous weakness in the ISM PMI from now on, for at least 12 months.

I hope this was enjoyable, informative and clear.

If you have any questions, please write to me.

Thank you and have a great week,

Aidyn.

Right Shoulder pt II

2009-10-29T16:15:00.004Z

BOTTOM LINE: Markets bounced as expected, and will likely continue moving higher in a choppy [corrective] fashion. This will form the "right shoulder" on the charts. I expect this to last into early next week.

Below is an hourly chart of the German DAX. I consider this index to have topped on October 23, and since then it fell in an impulsive fashion. This will now be corrected, likely pushing the index another 100 or so points higher.

I believe markets will be pulled higher by the Energy sector (third biggest), as oil (shown here on a daily chart) pushes higher towards $85. This will then set up a nice top.

Right Shoulder

2009-10-28T16:35:00.003Z

BOTTOM LINE: Markets have been moving beautifully along the expected lines. Right now, there is a strong chance of a bounce of about 3% in G7 equities. I expect this to last into early next week. It is likely that this push higher will be led by crude oil moving above its recent highs.

Below is a daily chart of the German DAX. The index, like many others, has now breached very important supports - the rising trendline from the March lows, as well as the 55 day moving average. I expect some sort of consolidation to now take place, which could take the index about 150-200 points higher. Eventually, I see this index falling to at least the 200 day moving average through November.

Crude oil (on the daily chart below) has likely completed wave four of its unfolding leg higher. It will now likely proceed to make a new high above $82, and could extend as far as $85. This will likely pull equities higher, and coincide with [corrective and temporary] weakening in the US Dollar.

BOOM!

2009-10-28T11:21:00.002Z

BOTTOM LINE: There isn't much for me to say. All views remain unchanged from a week ago - buy US Dollars, sell everything else. In FX, the dollar likely finished an impulse higher, and is now due for some corrective weakness. Equity markets should consolidate around current levels, and then continue lower.

This is a daily chart of the German DAX. It is now very likely that an intermediate-term top has been put in on 20 October 2009. I expect sustained weakness here.

In the Process

2009-10-23T11:12:00.003+01:00

BOTTOM LINE: My views remain unchanged - asset markets are in the process of peaking or have peaked.

Just one chart today - a 30 minute chart of the Shanghai Composite Index (courtesy of an old friend). I think it is one of the cleanest charts out there, and looks very ready to begin the decline.

And So It Begins.

2009-10-22T09:28:00.002+01:00

BOTTOM LINE: Most asset markets have likely peaked. Bounces should be SOLD. Range breakdowns should be SOLD. Range breakouts are most likely to be false breaks, and should be SOLD. Sell everything and buy US Dollars.

Below is a daily chart of US Financials. This index looks really, really tired. Remember, this is now the second biggest sector in the US, with 14.9% of market capitalization. The first is IT, with 18.9%, Energy and Healthcare are both around 12.5%.

This is an hourly chart of SP500 futures. A bounce from here would be a gift to the bears, and should be SOLD. Chances of re-test or take-out of the highs are very slim, but should that happen, the market should be SOLD.

Peaked pt II

2009-10-21T09:27:00.003+01:00

BOTTOM LINE: There is no change in my view or positioning - risk markets have likely peaked or are very close to peaking. This is the market that should be sold on new highs or sold on breakdowns through previous lows.

As there is no change to my broader "risk" markets view, I ask you to refer to previous posts for the outlook.

One of the charts that is out of sync with the rest of the market is Oil (and some other commodities). I currently expect oil to fall towards $76 and then it would be fitting for it to rise towards $85. With such an outlook, it might be difficult for equity and risk markets to sustain weakness, unless recent correlations break down. This is of course possible, given oil and equities moved in opposite directions prior to oil's final peak around $147 in Spring 2008.

Below is a daily chart of crude oil.

Sell the News?

2009-10-20T09:10:00.004+01:00

BOTTOM LINE: Markets are quite extended to the upside. Even stellar earnings results (so far, AAPL, GS, JPM etc) fail to push the broader market higher. Structures on everything I follow indicate that corrections to the move that began in early October are imminent.

Below is an hourly chart of e-mini S&P500 futures, with my count as of 5 October 2009. While the index is trading about 1% higher from my projected levels, and took slightly longer to get there, I maintain my bearish outlook. My confidence in this call is very high.

This is an hourly chart of DJ EuroSTOXX 50, and the index is basically flat relative to where I thought it would peak. This structure is very tired, and I cannot see how it could rally meaningfully without at least a 5% correction first.

Peaked

2009-10-19T11:08:00.003+01:00

BOTTOM LINE: It is highly likely that European stock indices have peaked for a 10%+ correction. For this view to hold, last Friday's levels should not be seen again. Also, gold and silver likely peaked too. I maintain that even if we do trade above Friday's levels, it will only slightly postpone a significant correction.

Below is a daily chart of the Financial Services ETF in the US. Further to my Thursday 15 October post, I believe this sector of the market has topped. My confidence in this call remains very high.

This is a daily chart of Silver. I believe that it has topped. There is a slight chance of a marginal new high, but I cannot see any sustainable upside. Downside risks are huge.

Finished structures pt 2

2009-10-15T16:48:00.004+01:00

From CNBC:

BOTTOM LINE: A number of indices and sub-indices, as well as individual names have likely finished building upward structures. As mentioned yesterday, at this stage I would be very surprised if any more sustained upside were to materialise.

Below is a daily chart of the Financial Sector ETF (XLF) in the United States. This ETF includes companies like JPMorgan, Bank of America and Wells Fargo. From May 2009, successive new highs were made against bearish divergences on momentum indicators (MACD at the bottom of the chart). This suggests that the sector is ready to move lower. My confidence in this call is very high.

Finished structures

2009-10-14T11:47:00.003+01:00

BOTTOM LINE: Whereas yesterday I noted that there was a chance of a run at the highs, today I dare to say that further upside, now that the highs have been breached (yet again), is limited. From now on, I would be very surprised if we make any additional gains in risk and related assets.

The German DAX, shown on the daily chart below, has rallied along the expected and projected line. I believe that the last spurt up from Tuesday 13 October low into the high of today (around 5850 on Dec'09 futures) finishes the structure from the 5 October low.

Tipping over?

2009-10-13T16:13:00.005+01:00

BOTTOM LINE: Medium-term, tops are quite close. Short-term, there is still not enough compelling evidence, even though it (the evidence) is accumulating.

On the hourly chart of DJ EURO STOXX50, a false break above September highs is encouraging for the bears. Even though the structure from October lows (blue "4") is mature, there is still a chance of a run at the highs. For an immediately bearish scenario, EU markets should not rally past levels traded around 12.45pm today (13 Oct). Taking out those levels exposes another ~2% upside.

Dow Transports, shown below on an hourly chart, may have topped for now. I would not like to see it rally above yesterday's highs for an immediately bearish view.

This is a four-hourly chart of the USD against the Hungarian Forint (HUF). New lows are made against substantial divergences on MACD. Overall, the pattern appears to be base-building. I am still a buyer on weakness.

Dow Transports at the high point of its second wave?

2009-10-12T14:33:00.002+01:00

BOTTOM LINE: The recovery in the Dow Transports played out according to projections and expectations. If the count I follow is correct, DJT should close flat to negative today.

Below is an hourly chart of the Transportation average. Obviously, there is no point in trying to fade a rocket launch, so it is perhaps best to wait for the index to at least fall below the little consolidation zone formed on Friday of last week, about 1% below current levels.

Weak Prospects

2009-10-12T10:53:00.002+01:00

BOTTOM LINE: Upside for risk and related assets is limited. Market is very close to a top in risk and a bottom in USD.

Most G7 markets now breached their September highs. I believe this completes their upward structures from October lows. It is highly likely that it also completes their upward structures from August lows. With the said breach, equity markets look better for a sustained decline than they did had they fallen from directly from September highs.

Time to start building shorts.

Below is an hourly chart of SP500 futures. While the move from green "4" to the green "5?" along the projection in thin green (drawn a week ago) could be but the first wave of the final fifth wave, it is worth treating it as the final one in its entirety.

Weak Prospects

2009-10-09T09:56:00.006+01:00

BOTTOM LINE: A number of markets succeeded in making new recovery highs (notably the Dutch AEX). I believe that this marks, at the very least, a short-term top in risk. USD likely bottomed against Eastern European currencies, and very likely bottomed against Silver and Gold.

Below is a daily chart of the Dow Transports. The decline off the recovery high unfolded in an impulsive fashion, with the subsequent little recovery looking very corrective. This latest recovery also tested the back of the rising trendline (in blue). I believe that a fairly precipitous decline is about to unfold here.

A good proxy for EU indices - EuroSOXX 50 is on the hourly chart below. It is increasingly likely that most EU indices will fail at previous recovery highs. Even if they don't, highs will likely be marginal and should be used as an opportunity to sell.

Silver is finishing, if not already finished its move higher against the dollar, illustrated on a daily chart below. Similarly for Gold, the latest rally, which began on 2 October (at $987) has likely reached it end. This will complete the bigger rally from July 2009.

Topping

2009-10-08T09:57:00.004+01:00

BOTTOM LINE: Chances are quite high that equity and associated "risk" markets are close to having topped. Also, USD is close to trading a meaningful bottom.

The bounce off the most recent low in October came and unfolded almost exactly along the expected lines. While none of the equity markets I follow succeeded in trading a new high, some other "risk" assets did (notably in FX and Commodities). A number of equity markets are very close to their new highs, such as the Spanish IBEX (came within 0.25% of the high so far). Internal structures of the moves higher from October lows appear to have traced out a complete five wave sequence, suggesting that it is done. This sequence could either be the whole of the fifth wave higher, in which case it will be a "failed" fifth, or it could be the foundation building block. The important thing is that either way, there ought to be a pull-back. The nature of that pull-back will give clues as to whether we rally still higher, or head south in a meaningful way. G7 bonds are pulling-back in a shallow, corrective manner, suggesting plenty more upside.

This is an hourly chart of DJ EURO STOXX 50. The structure is mature, and prone to failure.

This is a daily chart of Silver. While gold-bugs are dancing in the streets and precious metals are destined to go to the moon, I expect Silver to top somewhere around current levels (it might take a bit of time, about a week more perhaps).

Reaching for the sky

2009-10-07T09:53:00.005+01:00

BOTTOM LINE: Stocks are in the process of building fifth waves higher. As things stand now, it looks like those waves might fail at the previous highs or make marginal new highs. Internal structures of some European indices appear to have traced out impulses from recent lows, which might be whole fifth waves. They could also be first of three impulses that higher that would make the final fifth wave.

Below is a daily chart of the DAX. Neither the count nor the projection has been updated since Wednesday last week. Upside targets and possible topping zone remains at 5800.

The Dow Transports bounced as expected, and are now tracing out a corrective wave higher. I do not expect new highs here.

This is an hourly chart of the Emerging Markets ETF (EEM). So far, it counts perfectly as an ABC correction. Upside is severely limited. Penetration of 2 October lows would mark the top.

Contrary to popular belief, lower yields have not been "good" for stocks for the past 11 years. Notably, 2 year note yields have led the market since the last bear market began. Either this relationship is broken and we are in the "new paradigm" of low inflation forever which brings higher valuations forever, and this is what the divergence between yields and assets tells us, or we are on the verge of a significant decline in assets or rally in yields. For a number of reasons, I expect it to be the decline in assets.

Quicksand

2009-10-06T11:37:00.005+01:00

BOTTOM LINE: Equities are in rally mode, which was expected. The bounce so far is strong in price, but weak in volume. This suggests that a fifth wave rally is unfolding, rather than a correction higher. 1021 on SP500 futures and 5460 on DAX futures are bear-trigger levels (should the market tank from here).

On the daily chart below, the DAX is moving higher off the support provided by the rising channel. I would love the market to challenge September highs, which would provide excellent levels for shorting.

This is a four-hourly chart of the Dow Transports. I believe that an impulsive structure down has been built, and will now take a few days to correct higher to ease oversold momentum.

One of the bell-weather stocks for the broader market, this is a daily chart of Baidu, a Chinese internet search engine. You might notice that its chart is almost identical to Apple and a number of other tech names. It appears that the decline of 2008 was a large C wave, and the rally since then has been an incredibly orderly impulse. This impulse is now in its very final stages.

Elsewhere, the USD continues to build a base against a number of currencies.

Uncertain outlook

2009-10-05T10:14:00.004+01:00

BOTTOM LINE: While medium and long-term outlooks are firmly bearish risk/bullish USD, short-term risk could rally, with a new high for some index averages not at all out of the question.

The sell-off last week materialised as expected. As the market stands right now, I lean more towards a bounce. This bounce could be shallow and short-lived (corrective), but it could also be a building block for a fifth wave higher (of "c" wave of the second zig-zag). As always, the nature of the bounce will give clues to the market's intentions.

Given the medium and long-term bearish views, I would use any bounce as an opportunity to increase short exposure.

Weak prospects

2009-10-01T16:38:00.006+01:00

BOTTOM LINE: In FX, USD likely bottomed against Eastern European currencies (CZK, HUF, PLZ). USD continues to build a medium-term base against majors. In Equities, signs that a medium-term top is close are accumulating.

Some stock index averages, notably the Dow Jones Transportation average, on a daily chart, below, are breaking through important medium-term trendlines. I do not think a new high is likely here.

While some indices may have topped, others could still stage a ~5% rally from current levels and still look reasonably weak. On a daily chart of the DAX, below, a rising channel is seen in blue. It could still contain the DAX on the downside, and provide a platform for what would be the fifth leg higher into the 5800-5850 zone. This is the case for other leading averages, such as the S&P500, Nasdaq and DJ EuroSTOXX. However, at this stage the pressure is on the bulls. With minimal conditions for the second "zig-zag" already met, averages could fall directly from here. As usual, it is the nature of bounces that will provide clues to future price action.

Today, a few key levels were broken on the daily chart of the USD against the Polish Zloty. It appears that a bottom is in place.

On balance, considering price action in FX, Fixed Income and some equity markets (like the Transports), I would be a seller of risk on strength. While strength could take some stock index averages to new highs, they are likely to be marginal.

Mid-week summary

2009-09-30T11:20:00.005+01:00

BOTTOM LINE: The market continues to rally on weakening internals (volume, breadth); the US dollar is building a medium-term base.

I believe that right now, the cleanest and clearest counts are in FX, with the US dollar having built a solid "leading" diagonal from its lows immediately after the Fed announcement last Wednesday. If this count is correct, then the US dollar is currently completing its correction lower, which took form of an irregular, and should begin rallying past this week's highs.

On an hourly chart of the EUR/USD below, a short-term correction could be complete.

In Equities, while confidence is very high that a medium-term top is being built, short-term structures remain ambiguous. In Asia, with high probability, tops are in. In US, some sectors, like Retail, Finance, Homebuilders and Oil have topped as well. In fact, the broader indices in the US still have great impulsive structures down from last week. If a fall were to happen from current levels, that would not be surprising. In Europe, the picture is mixed. A number of sectors, notably Banks, suggest that the top is very close. At the same time, it could only be a top of a smaller third wave, pending a decline of about 2-3%, followed by a ~5% advance into 5800-5850 level on the DAX.

On the daily chart of the DAX below, both counts suggest more upside. Minimal conditions for the blue count have been met, and the fifth wave could end here, truncated.

Prospects are still weak.

2009-09-28T15:05:00.007+01:00

I apologise for disappearing for one week - this was due to a fabulous holiday in Greece.

BOTTOM LINE: Risk will likely consolidate between the highs and lows of next week for a few days. There is still a 50% chance of a run at the highs across most major stock averages, particularly in the EU.

As expected (see Friday 18 September post below), the move up from September lows finished after the Fed announcement last Wednesday. That whole move was likely the penultimate move higher. The decline after the Fed announcement is impulsive in case of US indices. It is not really as clean in case of EU indices. Therefore, it is likely that the post-Fed decline is part of an ongoing correction which will provide a base for a move to around 5800-5850 on the DAX and 1100 on the SP500.

I give the above scenario a 50% chance of occuring, and will tweak the target levels as the structure unfolds. If equities were to start moving lower from current levels, without a new high, I would not be surprised. However, in this case, I could only describe the way the top was established as "strange".

Elsewhere, USD is bottoming against everything.

Weak prospects

2009-09-18T09:35:00.003+01:00

BOTTOM LINE: Risk is close to completing the move higher that started in the beginning of September. USD likely bottomed, give or take another 1%.

I am not very clear how the very last leg higher in Risk and related assets (from 3 September 2009) is related to the prior move up from July lows (in thick blue). In any case, this last leg is close to its end. I expect it to end anywhere from here to around 2% above current levels (DAX 5720).

In FX, get ready for a fairly big and meaningful appreciation of the US dollar, about 10% against majors, and 20% against EMFX, as shown below on a daily chart of USD/BRL (Brazilian Real):