The collision of global markets and social mood

Thursday, June 13, 2013

No One Rings A Bell At The Top

This morning Drudge Report is headlining GLOBAL PANIC SELLOFF. It's a Reuters story:

Ordinarily it is good to see headlines such as these, but the only worrisome thing is the term "gathers pace." It has a ring of truth to it.

Yesterday's failure to build on the overnight futures momentum said a lot. 1650 should have been easy. The S&P couldn't even fill the 1642.81 gap. Lame.

So there are darker scenarios should the market choose to gather pace. 1607-1610 is a must hold for any bounce to materialize (which could be a significant one.) Below 1600, and suddenly 1571-1580 is the next area.

Here's how the pattern might look:

The cool thing, should this occur, is there would be a gigantic bounce back to the 1660 area that would be absolutely stunning. (It should be noted these are not accurate Elliott wave labels. They're dead simple wave labels, and that's all that matters to me when I use this approach. Keep it simple. The market is a fractal. Just find the smallest, clearest 5-wave sequence you can and go from there. Learn a couple "rules." See where it takes you.)

Today could take us a lot higher or a lot lower. I still like the 1650+ area. The market may have other plans.

Here's a macro scenario: what if the entire world has overestimated the ability of the central bankers to get it right? What if the "plan" fails in Japan and the yen gets much stronger in a rout of desperate short covering (like below 70 USDJPY)? Since the yen is a large part of the dollar index, the dollar could tumble, but instead of being a Risk On signal, it could signal RISK OFF. The bond market would likely rally. With a potential wave count target of 5,000 for the Nikkei, things could get weird pretty fast.

That is why, should the "1580 scenario" take place, we should be prepared that Big Ben's excellent Fed Day Speech back at the 5/22 top could have marked the top.

No one rings a bell at the top. Especially not Wall Street.

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