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.
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