Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Glimpse Into The Future Of The Stock Market And Dollar

Stock-Markets / Financial Markets 2011 Nov 27, 2011 - 12:11 PM GMT

By: PhilStockWorld

Stock-Markets

Best Financial Markets Analysis ArticleThe "accident" many have been waiting for has finally happened, and it’s called Europe. That doesn’t bode well for the U.S. stock market.

A lot of technical analysts and financial pundits are expecting a standard-issue Santa Claus Rally once a "solution" to Europe’s debt crisis magically appears. There will be no such magical solution for the simple reason the problems are intrinsic to the euro, the Eurozone’s immense debts and the structure of the E.U. itself.


We can fruitfully start a speculative look into the future of the U.S. stock market and dollar with a quote from John Mauldin’s book Endgame: The End of the Debt Supercycle and How It Changes Everything:

Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public’s expectation of future events, which makes it so difficult to predict the timing of debt crises. High debt levels lead, in many mathematical economics models, to “multiple equilibria” in which the debt level might be sustained —or might not be.

Economists do not have a terribly good idea of what kinds of events shift confidence and of how to concretely assess confidence vulnerability. What one does see, again and again, in the history of financial crises is that when an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are. But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.

The accident has finally happened, and it’s called the euro/European debt crisis. I see a lot of analysts trying to torture a Bullish interpretation out of the charts, so let’s take a "nothing fancy" chart of the broad-based S&P 500 with five basic TA tools: Bollinger Bands to measure volatility, relative strength (RSI), MACD (moving average convergence-divergence), stochastics and volume. 

If we use Technical Analysis 101 (basic version), a number of things quickly pop out of this chart--and none of them are remotely bullish.

1. This market is not even close to being oversold. Bulls are hoping that the selloff has created an extreme of negative sentiment, which would be a reliable indicator that the market is about to rally. But there is no evidence of such an extreme, and the VIX/VXO (not shown) is also not at an extreme.

Rather than an extreme of negative sentiment, we see complacency, and a long way down to reach extremes in RSI and stochastics.

2. The 200-week moving average (MA) has offered picture-perfect resistance and support. The entire August-September period of wild swings of volatility can be seen here as a struggle around the 200-week MA.

In a classic retracement, the SPX shot up and recovered the 50-week MA, but failed to hold that level. Now it is heading back down for another retest of the 200-week MA. Only this time the chart is significantly weaker than in September, and the low-volume "oversold/hopium" rally in October was technically underwhelming.

3. Another clue that supports the notion that the 200-week MA will fail to hold this next text is the beautiful (to technicians) complex head-and-shoulders pattern which is made up of a shallow HS triple top formed from March to August of this year, and a second outer left shoulder formed in November of 2010.

The corresponding right shoulder was traced by the October rally that just rolled over. This completes a long-term head and shoulders topping pattern.

4. The MACD is extremely negative, being well below the neutral line and rolling over into a bearish cross. Coincidentally, the stochastics also rolled over in a bearish cross.

5. Price tends to alternate between the Bollinger bands; rallies will rise to the upper band and push it higher, while declines will fall to the lower band and ride it down. Thus the lower band is a reasonable initial target for this decline. The problem for Bulls is that this target is well below the 200-week MA, meaning that hitting the lower band will mean the 200-week MA will be decisively broken.

If price does fall to the lower band, we can anticipate an oversold rally back up to the 200-week MA, followed by a renewed plunge to new lows.

An insightful technical analyst who prefers to be known only as "Chartist Friend from Pittsburgh" shared two very long-term charts of the Dow Jones Industrial Average (DJIA) and the U.S. dollar. As I have noted here many times, the current era has seen the DJIA and the dollar on a see-saw, meaning a falling dollar has corresponded to a rising stock market, and voce versa.

These charts are remarkably self-explanatory:


The implications of this chart are not exactly Bullish, as it targets a long-term bottom between 1,000 and 600.

Turning to the U.S. dollar, our Chartist Friend observed, The monster decade long head & shoulders on the DJIA is well documented, but I have yet to see anyone other than myself make a connection between the DXY mid-90′s bottom and the bottom that it is forming today."

Our Chartist Friend from Pittsburgh has noted how a classic 5-point pattern may be repeating, which targets the 86-88 level in the DXY near-term. Longer term, this chart suggests a rally of much greater duration and vigor than most analysts dare extrapolate in the current dollar-Bearish climate.

Submitted by Charles Hugh Smith from Of Two Minds

Courtesy of ZeroHedge. View original post here.

- Phil

Click here for a free trial to Stock World Weekly.

www.philstockworld.com

Philip R. Davis is a founder of Phil's Stock World (www.philstockworld.com), a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders. Mr. Davis is a serial entrepreneur, having founded software company Accu-Title, a real estate title insurance software solution, and is also the President of the Delphi Consulting Corp., an M&A consulting firm that helps large and small companies obtain funding and close deals. He was also the founder of Accu-Search, a property data corporation that was sold to DataTrace in 2004 and Personality Plus, a precursor to eHarmony.com. Phil was a former editor of a UMass/Amherst humor magazine and it shows in his writing -- which is filled with colorful commentary along with very specific ideas on stock option purchases (Phil rarely holds actual stocks). Visit: Phil's Stock World (www.philstockworld.com)

© 2011 Copyright  PhilStockWorld - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ron
27 Nov 11, 21:51
The REAL Accident that Happened

You say : The accident has finally happened, and it’s called the euro/European debt crisis.

I say : The accident has finally happened, and it is called The Failure and Fraud of M F Global causing the BRUTAL loss of confidence among market players.

Yes; it is over either way ~ only the cause is in dispute.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in