Finished structures pt 2

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

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?

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?

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

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

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

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).