Prospects are still weak.

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

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):

USD bottoming in the long-, medium- and short-term.

BOTTOM LINE: The US dollar is bottoming at these levels. My conviction in this call is very high, as high as conviction in the beginning of March 2009 that equities were at their lows.

Below is a daily chart of the US dollar against the Brazilian real. The real is likely to weaken substantially in the coming weeks, as the dollar strengthens across the board.

At this stage, my medium-term bearish outlook on equities is somewhat contingent on the dollar. While FX patterns are fairly clear, and point to imminent reversals in favour of the dollar, equity patterns do not yet look complete.

USD near to medium-term

BOTTOM LINE: The US dollar is at or very near a medium-term top. Yesterday, I started buying March 2010 SP500 puts. This now seems premature, but I continue to believe that stocks are close to putting in major highs.


Below is an hourly chart of EUR/USD, which is completing its move off the 2 September lows:

Almost there

BOTTOM LINE: Asset markets (Equities, Gold, EMFX) are living on a prayer. Chances are high that the top is very close (this week/early next week).

European stock market indices, illustrated here with an hourly chart of the French CAC40 are in the process of fnishing their fifth (and last) waves higher. At this stage, this process could end and reverse anytime.


This is a daily chart of General Electric, currently the sixth largest company in the US by market capitalization. The stock is also in the final stages of its fifth wave higher, which will complete a much larger corrective pattern higher, and set the stage for a substantial decline.

In FX, we have a bottoming USD. Below is a daily chart of the Brazilian Real against the US dollar. The chart looks quite USD-bullish.

Against the EURO, the USD is also in its final stages of weakness, shown below on an hourly chart of EUR/USD.

The top in risk might be in. Again.

BOTTOM LINE: Various asset classes followed the projected paths, and may have topped this morning. I also begin coverage of ECX Carbon Futures - the price of carbon monoxide emissions as traded on the European Carbon Exchange. While not the most liquid of instruments, I find that it is beautifully technical and is likely to shed light on what might be happening in other asset markets.

Below is an hourly chart of the DAX, with counts and projections not updated since Thursday last week. As can be seen the market followed projections, and as of right now fell in an impulsive way on short-term charts. Following a retracement, this market is a sell against the highs of last Friday.

Below is a chart of the Australian against the US dollar. The count and projections have not been updated since Wednesday last week. The market, so far, is following an orderly path, and the USD will likely continue to strengthen.

This is an hourly chart of the USD against the Polish Zloty. Along with other Emerging Market currencies, the Zloty has likely topped against the dollar.

This is a chart of ECX Carbon Futures. This market is very weak, and is likely to head towards the lows established at the end of last year. Carbon prices, generally, reflect levels of industrial production.

What is going on, what is happening?

BOTTOM LINE: All asset classes are moving along the expected lines. Medium-term tops are close. 1-1.5% moves lower are expected today, after which I expect final exhaustive moves to the upside.

Below is an hourly chart of the DAX, which is very, very heavy. I could make a strong case for that the structure from the September low is finished, and we have topped for a while. However, I equally cannot rule out an exhaustive move to a marginal new high following a 50-70 point correction. It is the nature of this expected immediate-term run down and the subsequent bounce that will tell us whether we topped or not.

Below is an hourly chart of General Electric, currently the fifth largest stock in the SP500. This stock is ripe for a mighty move down, which is likely to start very soon.

Elsewhere, a number of FX crosses are signalling an imminent reversal for risk - USD/Central and Eastern Europe may have bottomed. EUR/Commodity currencies may have bottomed also.