Stock Market Dam is Ready to BurstStock-Markets / Stock Markets 2012 Dec 07, 2012 - 04:50 AM GMT
We finally caught the break we have been waiting for in the Euro. It broke its Bearish Wedge today, leaving no doubt of its destination. This is the first major “crack in the dam.” With the Euro uptrend broken, the rest of the markets will follow. Those who are long will be like the people living beneath the dam burst. They won’t even have time to make for higher ground.
There are several subscribers who are becoming impatient that nothing has yet happened. To them I simply say, “Stay on higher ground.” Please review the details from Edwards & Magee’s Technical Analysis of the Markets on the Orthodox Broadening Top. It is a very deceptive formation.
Here is an hourly view of what has transpired in the SPX so far. There is a less-than-50-50 chance that the SPX could be edged up higher (to 1418.91, the 50-day moving average) in the opening hour tomorrow. But neither the action so far nor the potential of a slightly higher open tomorrow changes the bearish outlook. This is the final and most dangerous stage of the Orthodox Broadening Top formation, equivalent to the dam burst mentioned earlier. Too many people will be looking for an exit and the doors will be blocked (due to a lack of buyers).
It would pay to read today’s ZeroHedge article on record margin debt. In addition, Net Free Credit has plunged -$44 billion in October. Investors are already invested beyond their capabilities to handle a downturn.
In summary, investors are swimming in debt and banks are becoming very concerned about extending credit any further.
Yesterday’s record sell-off in AAPL for no apparent reason should give one pause. Some of my Wall Street contacts have suggested that the Fed may have even stepped in today to prevent a rout in the market due to the AAPL sell-off, since Margin Calls would start on Friday. Whether the rumor is true or not, this is no place to “buy the dip.” NDX has been stopped at its 50-day moving average, its 50% retracement and its Broadening Wedge (slightly less bearish than the Orthodox Broadening Top). Although it made a slight gain today, the dip below the final support is a warning that the support may not hold the next time.
I did a triangulation of the different cycles in the Dow, the NDX and SPX. The ideal date for a cycle bottom now appears to be next Thursday, December 13. The fractal pattern starting at the high on Monday morning agrees with this analysis. Several of my compatriots also agree that December 13 may be a pivotal date for a significant low.
Be patient. The market does what it will in its own time. Fortunately, the Cycles Model appears to be making order out of what seems to be a disorderly market.
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