Diary of a Financier

Chart Update: SPX (ES)

In Capital Markets on Mon 23 Apr 2012 at 18:56

I’m working tonight to digest everything from this busy Monday in the markets, so I wanted to get some thoughts down.

I awoke this morning to find the S&P 500 Futures (ES/) contract gapped down through the bull trendline support it had hugged for almost two weeks:

ES daily- held 1360 first support after breaking 50DMA & trendline support.

By the open, everything had cascaded lower, with indices working on some big percentage losses. Although trendline support was broken, SPX actually managed to bounce off my 1st support target @ 1360 to close just above 1366 (-0.84%). This felt like the inverse of Friday, in which huge gains were pared into the week-end close.

I’m trying my best to resist the persuasion of a recency effect, which has drawn the herd toward bearishness. The rounded-top formation everyone has squawked about for the past few weeks now looks like a Head & Shoulders to me, much like that of 2011 (and to some extent 2007-08). It’s an unconventional formation because it’s tilted, so I’m looking for an immediate rally >1386 to convince me otherwise. Broader indices like the Russell 3000 All-market (RAY) or All Country World Index (ACWI) exhibit more classical H&S, which nominate bearishness. Further, I notice a downside slide already underway in higher-Beta indices: climbing up the risk spectrum from RUT-SOX-HYG-EFA-EEM, I notice chart patterns degrade across the sequence from RUT’s H&S with a weak right shoulder to EEM’s outright bear channel (lower highs/lower lows).

Everyone wants to know if the US will fade disasters in international markets, as if a continued Eurocrisis were inevitable. First off, mainstream awareness of European malaise makes the Eurocrisis a known-unknown, as opposed to an unknown-unknown. Therein lies the difference between that occasional grey swan and a debilitating black swan. Second, of course the US would not prove fully immune. That being said, I wouldn’t expect a return all the way to 2011’s SPX 1074 low. I’d suggest 1250 as a target downside, for both psychological and fair value considerations.

Accordingly, bear divergence in longer SPX fractals does have me braced for that late-April swoon I had promised–although I must admit that it has arrived a week sooner than I bet on April 11:

SPX, ES & SPY will rest on their bull trendline support over the weekend. While longer-term weekly & monthly fractals form tops in unison, the daily chart requests one last hurrah before the tide goes out… and I expect to be swimming for another two weeks.

I’ll be selling equities into any strength tomorrow, particularly erosion into the close. Intraday charts have me expecting a quick pull up to SPX 1370 (Thursday’s low). Longer fractals help me see a seething market nonetheless…

ES- Head & Shoulders breakdown in daily fractal echoed by bear divergence in weekly & monthly charts.

…while the men on television have done their daily flip/flop, now talking about the wall-of-worry instead of the housing bottom. (Actually, Jim Cramer’s telling grandma to buy Apple. Who knows, every now and then a permabull finds a nut.)

~~~~

Global market summary (6:18pm EST):

–Romeo

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  1. […] week in that risk markets reversed out of bearish setups to maintain a bull trend.Back on track per the 2011 […]

  2. […] a Known Unknown- Grey Swans don’t crash markets. The Eurocrisis today is much different than in 2011, when the main-stream […]

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