Right Shoulder

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!

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

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.

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

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?

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

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.