SCHEDULED GUESTS FOR TUESDAY, December 11, 2012
Segment 4 – Anthony Cherniawski, Chief Investment Officer – www.thepracticalinvestor.com
CLEAR CHANNEL DALLAS – KFXR/1190-AM And Streaming Live @ www.yorbamedia.com
The SPX rallied above its 50-day moving average at 1416.56 Monday and today. The rally has now made a 67% Fibonacci retracement of its September through November decline. The Orthodox Broadening Top calls for a 50% retracement inside its formation, which I calculate to be 1432.26, so it may be finished today. Yesterday was an important Pivot day, but a 24-hour delay may be considered normal.
A decline beneath the Orthodox Broadening Top at 1390,00 may trigger a decline with a 96% probabitity of reaching its intended target of 1074.00. In addition, the Ending Diagonal has also been violated, also targeting 1074.00. That’s two formations indicating a minimum decline to the October 2011 low. Once the SPX declines back below 1340.00, it will have triggered a third formation with an almost identical target at 1072.00.
SPX has also formed a potential Cup with Handle formation also at 1340.00 that has an even deeper target at 900.00 or below. A Cup with Handle formation has a 75% probability of success, but it complements the other formations, so it is not to be ignored.
The VIX has pulled back below its Model which many believe to be bearish. However, it would be that since November 16, it has been stair-stepping higher. Most analysts use a “rule of thumb” that, once the VIX is above 25.00, it is signaling danger to US equities. That is inaccurate. The VIX measures the threat to US equities once it moves above its mid-Cycle support/resistance at 17.57.
VIX is designed to measure the out-of-the-money options contracts in the following two months in the SPX. To that extent, it appears that there is a lot of complacency in the market. That may be a wrong conclusion to make.
The fact that Gold bounced from a level higher than its November 5 low has the bulls announcing the worst is over. However, today it has pulled back from its 50% Fibonacci retracement and a test of its Model resistance cluster between 1720.07 and 1731.24. Unless that happens, this is just another retracement rally that failed to gain traction.
A decline below 1650.00 triggers the Orthodox Broadening Top. While the Orthodox Broadening Top has a target above 1300, there is a massive Cup with Handle formation just below that projects a much deeper low. With a 96% success rate, the Orthodox Broadening Top is one of the most reliable (but rare) chart formations. The Head & Shoulders pattern and Cup with Handle formation merely confirm the pattern and gives it more urgency.
The Euro made its print high last week. It declined to mid-Cycle support, then made a 50% retracement. The bounce may be over, since today is scheduled for a Cycle Pivot.
USB is rolling over after failing to make a new high. Today it has declined to its 50-day moving average at 148.76. A drop beneath it will signal that the decline has legs. We can see a more direct correlation between the fiscal cliff and the long bond than we see in stocks. However, a sudden loss of support in the bond market will bring equities down with it.
Good luck and good trading!
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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