The Giant H/S formation - major equity market collapse ahead

Since I started posting here - some three months ago, the world index monthly charts have become the foundation for my overall outlook. Since January we have seen the world indexes rollover one by one. The US indexes have remained stronger than the rest of the world (the Bernanke Put?), but even the US markets have shown a clear rollover since the April peak.


FTSE World Indexes

The above chart was inspired by an original by John Murphy from Stockcharts.com. I was not aware of 'VEU', but its actually something I will most certainly refer to regularly in the months ahead. The VEU gives a good summary of the world indexes - but excludes the US indexes.


SP, monthly

You can see a key difference between the world indexes (VEU) and the Sp'500 chart. The US H/S formation is very lop sided to the upside, whereas the world index H/S formation is flat. I suppose anyone could list many reasons why this might be so, but the main one is probably none other than 'him'....the Bernanke, and his regular bouts of QE..Yes the USA is a stronger economy than most out there - and thus should perform better, but still, I'm guessing we don't have a flat H/S formation because of the printer man.


Summary

The VEU chart I believe is starkly bearish, and should scare the hell out of anyone with long term stock holdings. We presently have a GIANT head/shoulders formation, just as we did in 2007/08 - before the collapse wave. Except the latest H/S formation started from a lower price level..and is twice as big in both price range and time scale.

I believe the VEU chart is clearly warning of a collapse wave - on a scale similar to that seen in 2008. As noted, the 35.0 level will be a critical level for the bulls to hold. A break under 35 will surely qualify as a giant red flag for investors across the world.

I hope this chart provokes some of you to consider the bigger picture of world equity markets, I do think its important, and I will return to it regularly - not least since its a great way to summarise 'the rest of the world' in one single chart.


Looking ahead

We have a busy Friday ahead (5 sets of econ-data) including the big monthly jobs data. Market is expecting 150,000 (although estimates have been dropping in recent days). I'd guess anything under 100k would disappoint the market, anything under 50k...and we should in theory be looking at sp -25/30pts by the close of trading. As ever, bears should look to the VIX for confirmation if the market is -1% or more.

Goodnight from London