Spectacular Moves Ahead

Following the February decline, risk markets consolidated with an upward bias, as expected. So far this consolidation is very technical, and is stalling at just the right places.

This is a daily chart of the SP500, with projections carried over from the previous post. I expect the market to move sharply lower very soon, perhaps later on today (Friday) or on Monday.

This is a short-term picture - SP500 on a 15 minute chart. Some more upside is still missing, but "heightened vigilance" is warranted for any signs of a top.

Tentative Sign of Longer-term Peaks in Equity Markets

Equity markets peaked five trading sessions and 1.1% higher than levels indicated in my last post.

The form that the decline in S&P500 took appears reasonably impulsive, and suggests further downside.

Shown on the daily chart below is my projection for the S&P500, which I expect to peak below the previous peak, probably later in the week. What should follow is a rapid decline, likely to very strong supports around the 1225 level.

Equity and Risk Assets Correction imminent

I maintain that equity markets, represented here by the US SP500 index are about to turn around and fall hard. What I believe to be the final (!) (quite a statement!) squiggle higher, towards the top of the proposed 1320-1330 topping zone materialized today.

This hourly chart has the same count as yesterday.

Here I break down what I believe to be the final wave higher. I really struggle to see how this market can move any higher without a substantial correction first.

Equity and Risk Assets Correction imminent

Equity markets, represented here by the US SP500 index are about to turn around and fall hard.

My view is shown on an hourly chart of the SP500, below. I find it very difficult to see the index advancing significantly higher for much longer. My projected topping zone is between 1320 and 1330.

European Banks

This is a daily chart of the European Banking Index (Eurozone specific). Trading since late November 2010 low took shape of a well-defined flat correction. Current levels are pushing against a well-defined band of resistance and internally, the ascent from the January 2011 low (on the back of Portuguese bond sales) looks complete.

I expect this index to drop below the levels of November 2010 and January 2011 in short order. Needless to say, this will drag the rest of the European markets down.

Nosebleed

On a number of metrics, the "risk ON" trade entered "nosebleed" territory (a lot of inverted commas here). Sentiment indicators reached levels of bullishness last seen at three important points: April 2010, October 2007 and July 2007. Price action from the 30 November low is finishing a structure that needs to correct at least 2.5-3%.

This is a daily chart of the German DAX. Presented on the chart is the most bearish scenario, which I weight at around 50% probability.

This is a daily chart of the US two-year note future, which suggests that rates are likely to fall in the next few weeks (prices higher).

This is a daily chart of the German two-year schatz future, which also suggests that rates will fall in the short-term.

Wave Three Down?

If this morning's weakness in European equities continues (and equities do not rally to yesterday's highs), we could see dramatic acceleration to the downside.

This is an hourly chart of the French CAC40, labels are not changed from yesterday.