PIIGS!

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.