Saturday 15 December 2012

Weekend Update - Weekly Index Cycles

The indexes closed the week somewhat mixed. Certainly, there is no clear turn back lower, but we are seeing a few initial signs of weakness. With the market pulling back from the FOMC highs, the big question remains, is that it for this bounce from the November lows? We should know for sure, within a few weeks.

Lets take a look at the six main US indexes.

*all charts have been updated, I've added a new broad downside channel, which links the Sept' high with this weeks FOMC high - and a corresponding lower channel at the November low.

IWM (representing Rus'2000 small cap)

The rather volatile Rus'2000 index closed the week fractionally higher, but is sporting a spiky candle, and that is probably the top of this multi-week wave.

A break below 81, and certainly 80 would likely confirm the spike, and open up 76, which I don't believe will hold. An eventual move to break the June low of 72 seems viable, and hitting 70 - where the 200 MA is lurking.

Nasdaq Comp

The mighty tech' sector remains a real problem for the bull maniacs. This week only closed a little lower, but that's in addition to last weeks decline, so we have a new trend underway.

First target is 2875, that could be hit in the coming week. The January target - where I expect a major shake-out move to occur, would probably be in the 2600/2500 area - equating to the low sp'1200s.


The Dow closed the week a touch lower, but more importantly, it has a spiky candle, and this is probably the top of the cycle. First downside target is the big 13k level, if that fails, a move to around 12800/750 is likely within a day or so.

January downside target would be at least 12250, a failure of 12k, and we might see a flashy-crash style move to 11400/200 within days...if not hours.

Only with a break back above 13400 could I get bullish on the Dow, and even then, the more important threshold is the 13600 level, at which there is massive resistance.


The master index closed the week a little higher, but like most other indexes, also closed the week with a spiky candle. Certainly, the NYSE Comp' remains the most bullish chart for the bulls out there. It remains a mere 2% from breaking the September highs.

The underlying indicators are moderately bullish, although even in the NYSE, there is a touch of negative divergence.


The important sp'500 closed the week -0.3%, but more important, that is 25pts below the Wednesday FOMC high of 1438. We have a clear spiky candle for the week, and the fact it closed red is some further confirmation of weakness returning to the broader US markets.

First target is the 1390/80 zone, where there is a lot of support, not least with the 200 day MA @ 1387. A daily close in the 1370s would be a major warning of trouble, although in the near term that might merely be a brief low, before the much deeper low in January.

Indeed, the January target is a minimum 1325 - taking out the November 1343 low. However, I can't see the 1300s holding if the Nov' low fails. A test of the June low @ 1266 seems very viable, and considering 'everything' - especially the monthly charts, I hold to my original target of sp'1225.


The tranny had another crazy week, and managed to close the week with gains of 1.1%. The daily chart though suggest we are now stuck, with no less than four spiky candles! I await the first major day to the downside, first target would be the big 5000 level.

Again, I will note that the transports is to be closely watched, in that the eventual direction it breaks out - whether its >5400 or <4800, will be a key signal about where the broader market is headed.


I have to note that my overall bearish outlook was indeed on the brink of getting thrown out, had we broken into the sp'1440s, and put in a few daily closes at that level. Once again, it seems the FOMC has marked another top. If sp'1438 was the top..then how will the next down cycle play out? Consider the following four broad near term scenarios...

sp'daily5b- scenarios

My best guess is scenario D. This is where we'll see a moderate decline this coming week for 2-4 days, but levelling out somewhere in the 1380s..before a small bounce into Christmas week. The critical issue will be putting a lower low - <sp'1438. I'd guess somewhere around 1400/10, by Dec'26/28. I would then be seeking the first moves in a very significant down wave, that would continue across much of January.

So, a little lower, small bounce..then the major move.

Looking ahead

As for next week, well I'd certainly like to see some downside action, a move into the sp'1380s would be very much preferred. I see some others out there touting a break much lower, even below the November low of 1343. I can't see that outcome, not so close to Christmas.

Lets be clear, each day we get closer to Christmas, trading volume will likely get lighter, and that will merely allow the algo-bots to take command, and melt the market back upward.

So, best guess is a moderate sell off, perhaps briefly into the 1380s, by Wed/early Thursday, and then up...across Christmas..and perhaps a day or two after, Dec'26/27.

I remain short, seeking an exit in the 1380s..and intend to sit it out until after Christmas day. I am especially seeking to pick up some VIX Feb calls from Dec'26 onward.

Back on Monday.

WTIC Oil - still warning of Mr Deflation

Despite the regular bouts of money printing from the various central banks, deflation still appears the more powerful force. WTIC Oil remains in a bearish formation on the daily and weekly charts, and $77/75 seems very viable in January

WTIC Oil, daily

WTIC Oil, weekly

WTIC Oil, monthly2, rainbow


The daily and weekly charts are especially bearish, it would not surprise me if $80 is tested and briefly broken through next week.

The weekly chart easily supports the notion of WTIC Oil back in the mid 70s early next year. If we do see a few daily closes under the June $77 low, I'd expect my primary target of $60 to be hit 'sometime in 2013'.

It will take a serious recession in 2013 to get Oil back to the $50 level - not seen since May 2009. Yet, we have the biggest set of tax rises and spending cuts - via the fiscal cliff measures, due in a mere 17 days. Unless an agreement is reached to fully delay ALL measures, GDP is going to take a major hit in the first half of 2013.

Where is the inflation?

For those still expecting hyperinflation to occur in the near term, they really need to take a long look at the Oil charts, which are indeed warning of nothing less than a second deflationary wave. It probably won't be as severe as the one seen across 2008/9, but it will certainly keep prices pressed to the downside.

Goodnight from London

*next post, late Saturday, covering the weekly US index cycles.

Daily Index Cycle update

The main market confirmed Thursdays important initial decline, and most indexes showed further moderate declines. It appears that all indexes have now conclusively broken their up channel from the lows in mid November. This wave'2 bounce is apparently...done.

Nasdaq Comp





I think the bears should be very pleased with how the week concluded. Despite the FOMC spike higher to sp'1438, we're now 25pts lower - and thats without any major impulsiveness to the downside.

First target is the recent 1398 low. I do not expect that to hold, and then we should at least get down to the 1385/80 level - where the fib' chart suggest we might get stuck.

Most notable today..the transports. A four candle spiky top is very rare, and it is arguably the most bearish chart out there right now. Tranny could easily slip back to 5000, that's 4% lower, and probably suggestive of around 35/40pts off the SP', that's the low 1380s again.

One thing I'd like to see early Monday, the dow back under 13k. Maybe we can get a Monday gap lower of 1-1.5%. Anything more than that, and it makes my next exit..that much easier.

A little more later