In last week ‘s Ramblings I listed thirteen bearish points about markets around the world – I could have given double that number with very little effort . At the time I said “I was concerned on New York that what we might be seeing was the first part of a topping process which could obviously take some time to complete. Perhaps something like a correction here followed by a new high and then major failures.” This may in fact be what is happening – just much quicker than I anticipated. However, on reflection I don’t favour this option. I don’t think we have seen enough downside – it looks to have five little neat waves down – five small waves on their own shouldn’t complete a correction. What we did see was the break of the very short term upslanting wedge that I previously mentioned with the SPX meeting that initial target fairly precisely. What seems more likely to me is that we do some more work in this 1500/1525 area and form the right shoulder of a head and shoulders top but I must stress that it is just TOO SOON to have confirmation of how it will pan out. A couple more days of trading should make things clearer.
I called the Russell 2000 my chart of the year and it has been doing a pretty good job of leading. It certainly looks like it could do with a correction to come back and sit on its old all time highs which are going to be fabulous support.
OK – so here is my worry. I think the markets look overbought and should have a correction but I am worried that investors will throw caution to the wind and have a run at the old highs in the SPX and then put on something like 200 points or in other words 1700.
This is why I think coming days are very important. But whatever the path, I don’t think we are at the end of the bull market. Just think the odds of better opportunities are high.
In the local market, we had a little warning signal on Tuesday morning when we had a quick little decline that broke the first upslanting wedge on the XJO. However, the bulls regained control very quickly at the first support level but this behaviour worried me at the time as it signalled some sort of change of behaviour and nervousness in our market that we hadn’t seen lately. Then after a poor overnight trading session in New York, prices were literally crushed on Thursday as everyone headed for the exits at the same time. Banking Index still finished a little higher than last week despite the volatility.
Actually volatility is the one thing that has been missing from markets. I had mentioned previously I was looking for volatility to increase from 8th February through to the end of April. Been a bit slow getting started but seems intent on catching up.
My Genius Index is sitting on 91% this week. For the last eleven weeks only once has it been below 80% - a record on my chart. Once more I would like to remind everyone that it was a negative 4% at the bottom in October 2011. There is a lot less cash on the sidelines now.
Still closely watching some of the action in Asia. India hit the magical 20000 and now correcting. Still think it will ultimately go through those old highs. Shanghai came back from holidays in a selling mood but it was very overbought. But Indonesia and Thailand continue to sail higher. I think the Asian influence is continuing to grow on our market.
Precious metals certainly didn’t miss out when everyone decided to have a panic. But I must say this looks to be a fairly interesting level in gold. Need to see a bit of work to confirm a low but the negative sentiment here certainly looks extreme which should prove to be bullish.
(20min delay)