Click on Chart to EnlargeThe major indexes formed bearish top reversal patterns on Friday. This coincided with options expiration. I have shown the tendency for weakness in the couple weeks following options exp. as a consistent cycle for the past year. I don't know if this will be a lasting top or not, but I do expect a 1-2 week pullback starting very soon. The chart above shows some of the support beneath the market to watch. I'll be looking to exit the open SPXU trade on the next clear short-term oversold signal.
Click on Chart to EnlargeBuilding on the same large patterns that I have suggested throughout the last 9 months, it seems to me that the move up for the last year is now probably a triple three upward correction. The last sub-pattern in these is typically a contracting triangle. So the green lines above in this chart are just a rough suggestion of what to look for to help validate or invalidate this idea.
If this is the case then it should have ramifications for what to expect on a longer term basis. This is because a huge triple three pattern is rare, and will typically occur as an "A" wave of a triangle. So this may be the first move up of a large sideways contracting triangle to continue to form over the next year or so. So it is to early to have any solid confirmation that this is the case, but I continue to think that on an investment basis, it is best to use these highs as opportunities to sell stock/s rather than jump late onto the bandwagon.
I will update on some other markets this week. But right now here is a quick summary:
-Neutral on gold
-bullish on natural gas, wheat, soybeans
-bearish on oil and gasoline
50 pts down on the opening today, then the PPT came in. Still lower volume on up days. The market is going to take a victory lap this week as a political show on behalf of the health reform bill passing. Then, concern over the euro zone (or something else) will surface over the weekend into next week leading a new decline. The yo-yo dance will continue as long as the fed keeps buying treasuries, thereby keeping the 10-yr yld below 4%.
ReplyDeletetotally agree with you cdude. i'm wondering if a little selling might start on friday though.
ReplyDeleteQuite possible that they (PPT)will allow a selloff to occur (by not interfering with it)sooner than next week. The American public has the political attention span of a hamster! Looking for a Brothers Grim - if it were only that easy.
ReplyDeleteThe Banksters sold much of their rancid mortgages to FHA and even more to the Fed for 100%; even though the crap was only worth 5-10 cents on the dollar. So, now they're showing off their shiny new balance sheets, which BTW benefited equally by mark-to-mystery. BUT, they are still losing money within their business model.....you know...B-A-N-K-I-N-G.
Also... there is a new wave of Option ARM and atl-A resets in the offing. Peaking in the fall of this year and then forming an even larger peak in the fall of 11'. This will usher in a whole new species of mortgage defaulter. Otherwise "responsible" people who will make the fiscally sensible decision to walk away from their sub-aquatic homes even though they can still put food on the table. At some point the banks will HAVE to do the unspeakable and actually foreclose or REO the trash. Which,in turn,will set off two cascades of dominoes: lowering RE prices even more, and force the banks to show the losses on their balance sheets. The banks brought this market down in 2008, pulled it back up (with help from the Fed, a blind SEC and CFTC)in 2009 and will lead it down in 2010-11. Don't even get me started on the debt to GDP ratio :-)
ReplyDeletecdude
ReplyDeleteI am aware of that stuff as well. There are obvious fundamental issues to be dealt with. But as it stands, the Fed is able sweep a lot of the mess onto their balance sheet without the same transparency as a public corp. would have to have. So I think part of a wild card will be any continued pressure to audit the Fed, etc.