A few weeks ago, the low sp'1900s seemed a bold call, and yet we're now significantly under the August low of 1904, and the 200 dma is a clear 30pts higher up. US equities look utterly broken. Regardless of any bounces, this market is headed much... much lower.
sp'weekly7
Summary
*first, I should note, I'm guessing we will see at least some further weakness early Tuesday.. so I will probably need to adjust the above chart/wave levels.
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So, we start the week with a third consecutive red candle on the weekly 'rainbow' chart. We're now consistently trading below the lower weekly bollinger, and frankly... even I'm surprised.
I had expected some significant downside to the low 1900s, but the past 3 days have seen some rather severe price action. Further, it is being reflected in the VIX, which is now trading in the mid 20s for the first time since summer 2012.
Too low for a H/S?
With the break under sp'1900... the H/S scenario I have been highlighting lately is actually in jeopardy If we go much lower, the neckline would be too slanted to be viable.
sp'weekly7a
I realise some would already ditch the above scenario, in favour of a simple 123 down wave, with a third in November, but for now, I'll keep it.. if only for another day.
Looking ahead
There is no significant schedule news/data tomorrow.
*there is QE of around $1bn
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A bounce still seems due
I remain absolutely bearish about the intermediate picture - as I detailed last Friday. Despite today's declines, I'm still resigned to an equity bounce of some degree into late Oct/early November. For me, that will merely be a place to go heavy short, with a target (revised) in the low 1700s. Increasingly.. it is looking like the 2011 retrace (of 38%).. of sp'1650s is now a viable possibility.
So, in the immediate term, I'd still look for an equity bounce, with VIX retracing from the mid 20s to the mid teens. It wouldn't be that unusual, we saw just that in June 2011.. before the VIX exploded from the teens to the 40s.
Goodnight from London
