– The VIX closed for a third week below its 40-week support at 17.22 after making a Master Cycle low two weeks ago. The rule of thumb in Master Cycles is that, once a bottom is achieved, there may be a 3-4 month surge that follows. That means that VIX is ready for a massive wave  surge to begin.
SPX is ready to begin its crash fractal.
– SPX has been stalled between its 40-week moving average at 1388.45 and its 10-week moving average at 1419.00. This is not unusual within a Broadening Wedge formation since this a major pivot point in the formation. Wall Street banks may also have it in their agenda to keep the losses in AAPL quiet while they themselves distribute their shares. On the weekly charts, the crash begins here. Further confirmation of the bearish outlook occurs at 1388.45 (the 40-week moving average) and at the trendline of the Broadening Wedge near 1345.00. My Cycles Model suggests that the panic may be over within the next week, but with a panic low that may exceed most expectations.
NDX failed beneath its death cross.
–The NDX declined beneath its 10-week moving average at 2660.00 and its 40-week moving average at 2673.00. There is nothing bullish about this chart. The moving averages have made what is often called a death cross, confirming that the decline now has legs to move quickly and decisively. Final confirmation occurs at its mid-Cycle support and Broadening Wedge trigger at 2434.00. What is more, there are no further supports beneath mid-Cycle support until it has reached its Broadening Wedge average target below Cycle Bottom support at 2013.37.
Yet another confirming formation with an even deeper potential target has now appeared, called the (inverted) Cup with Handle Formations (in black). It becomes active beneath 2494.00, its prior low.
The Euro stair-steps towards a nasty decline.
– This week the Euro closed above its 10-week moving average at 129.12 while making a reversal pattern. This is the area from which flash crashes begin. My Cycles Model strongly suggests that an “accident” may happen this weekend in the Eurozone. I hope you will forgive me for repeating myself. You see, the prior crashes have started immediately after the index crossed the 10-week moving average. It is evident in the chart above. For some reason, the 40-week moving average may be the trigger, but I can assure you that the decline will be worse than any we have seen since 2008.
The US Dollar completes the retracement.
– USD found support at its 10-week moving average at 80.23 this week, stopping short of its 40-week resistance at 80.86. It has a waiting inverted Head & Shoulders neckline at 83.80. The potential right shoulder of the inverted Head & Shoulders appears finished, though it is shorter than the left shoulder. Because this pattern is not apparent in the daily charts, there is very little awareness of it and the ramifications of a powerful new trend in the Dollar.
Gold in week 2 of its crash fractal.
– Gold has closed a second week beneath its 10-week moving average at 1727.27. Final proof of a crash formation may be the cross below its 40-week moving average and the (crash) trigger point of its Orthodox Broadening Top at 1665.43. The next step in within the Orthodox Broadening Top pattern is that it goes into panic mode. The implications for gold are enormous. Investors are still looking up in gold, leaving them vulnerable to a panic, since there has been virtually no preparation for what may come. In addition, there is a Cup with Handle formation with an even deeper target. Could this be the start of something big???
The Bull Trap may have been sprung in Treasuries.
– USB had a key reversal say on Friday and it may have even qualified as a key weekly reversal, as well after retracing 58% of its most recent rally (not seen in the weekly chart). The November 16 high, which was a 68% retracement of the decline from the top, remains intact. Ending Diagonals are usually completely retraced, suggesting a decline below its 31-year trendline and a target near Cycle Bottom support at 115.56. This forecasts a massive technical breakdown. A further decline may spark the first flash crash in bonds, which nobody is expecting.
Crude broke its 10-week moving average.
– West Texas Intermediate Crude declined beneath its 10-week moving average at 87.92 this week. This leaves the door open for a decline beneath its Complex Head & Shoulders neckline at 78.00. WTIC has consistently closed beneath its 10-week moving averagefor the past 3 months and the 10-week, in turn has remained beneath the 40-week moving average since April.
China stocks are coming alive.
- After a very deep Primary Wave [B] retracement, the Shanghai index has vaulted out of its stupor. The Bullish Wedge is acting as the base for this retracement. It has rallied to its 10-week moving average at 2065.77 and is expected to exceed it early next week. This is an excellent place to take a position in $SSEC. It appears to have begun a very strong Primary Wave [C], possibly to the top of the Cyclical band.
The India Nifty has made a new Wave II high.
The India Nifty continues to extend its Cycle Wave II high. The most prominent formation is the Cup eith Handle formation, which is now evident. A decline from here would be caastrophic.
The Bank Index hovers between support and resistance.
– BKX is being squeezed between its 10-week moving average at 49.35 and its 40-week moving average at 47.49. These support and resistance levels have acted as the boundaries of the price activity in BKX last week. A break of the 40-week will send BKX toward mid-Cycle support at 46.31 and its Broadening Wedge trip-line very quickly. This is where the panic begins. The extended correction now puts an even more bearish Cup with Handle in play. The uptrend appears to be over in BKX. Now for a nosedive below supports and a downward acceleration into a full-fledged panic.
• Treasurys: $1,655,889 million
• Mortgages: $883,627 million
• Other assets: $209,863 million
• Agency debt: $79,283 million
Quietly, the Fed’s Other Assets have overtaken Agencies, and are now the Fed’s third largest asset category and about four times the total Fed capital of $55 billion. We have written about these “other assets” in the past; we will likely write about them in the future again, for the simple reason that the chart showing the Fed’s notional holdings in this category correlates quite clearly with the parabolic Greek unemployment rate.
We end on that note.
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
Office: (517) 699.1554
Fax: (517) 699.1558
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