— The VIX vaulted above all Model resistance levels, including the Lip of a Cup with Handle formation. The Cup with Handle target is approximately 27.60, where it may pause to give us a new inverted Head & Shoulders pattern. The Cycles Model suggests a minimum rise to the Weekly Cycle Top at 33.95. This is a new 6-month high in the VIX, as announced by ZeroHedge. This signals that danger for equities lies directly ahead.

SPX may have broken its 40-week average.


— SPX closed beneath its 10-week moving average at 1405.54. At the close, it appeared ready to take on its 40-week moving average at 1390.34 and its Broadening Wedge Formation at 1360.00. The overnight market (see below) now appears to have taken out the 40-week average, suggesting that the panic may begin within the next week, but with a much deeper low that may exceed most expectations in the next few weeks. I have been saying this for some time, and acknowledge that this is the most dangerous and difficult of formations to call. This may be truly an UH-OH moment.

(ZeroHedge) BLOODBATH: Finally, the market realizes that it was the patsy all along. This is what a real cliff looks like…Once again, it will be up to the market, just like last August, just like October of 2008, to implode and to shock Congress into awakening and coming up with a compromise of sorts.

NDX continues to decline beneath its death cross.


–The NDX continued its decline beneath its 10-week moving average at 2629.75 and its 40-week moving average at 2668.13. 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 2447.27. 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 2033.68. There is a great risk of continued selling in the after-hours market (SPY and QQQ may still be traded).

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, the prior low on November 16.

The Euro top is finally in.


— This week the Euro pulled back from its top, making a potential reversal pattern. The Cycles Model suggests a very sharp drop over the next 2-3 weeks, which would have the effect of wiping out many European banks whose collateral consists of European sovereign bonds.

(ZeroHedge) …just like last year when things were going from bad to worse in Europe, the old continent’s banks are suddenly facing a major liquidity shortage, which however would not be news to anyone who read our piece from yesterday “Surge In Marginal Lending Facility Usage To One Year Highs Confirms Year End EUR Repatriation” in which we said that Europe’s banks “suddenly find themselves needing gobs of liquidity – not USD-denominated liquidity, but domestic, EUR-based.” Sure enough, today we just got confirmation of how truly bad this issue is. That explains the Euro ramp.

The US Dollar extends the retracement.


— USD finally found support, stopping at the triangle trendline, which dates back nearly 5 years. 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 about to “activate” its Orthodox Broadening Top.


— Gold is about to activate its (crash) trigger point of its Orthodox Broadening Top at 1625.00. The next step in within the Orthodox Broadening Top pattern is that it goes into panic mode. There is potentially only one week left in this phase of the cyclical decline and usually the decline speeds up as the decline progresses. Part of the reason for the delay in the decline is the strong relationship between the Gold Cycle and the Euro Cycle. A strong reversal in the Euro may accelerate the declining pattern in gold.

(ZeroHedge) Adding to the confusion, for some, that is today’s trading session, here comes the CME which in a post-closing announcement, proceeds to hike outright margins on a variety of petroleum and freight products, but more importantly just cut the margins on gold by 9%.

Treasuries challenging 40-week support.

— USB declined beneath its 10-week support at 148.86 and appears to be challenging its 40-week support is just beneath at 147.47. However, it remains beneath its daily mid-Cycle resistance at 147.97. The primary pattern is the Ending Diagonals which is usually completely retraced, suggesting a decline below its 31-year trendline and a target near Cycle Bottom support at 115.99. This forecasts a massive technical breakdown. A decline beneath the 40-week moving average may spark the first flash crash in bonds, which nobody is expecting.

(ZeroHedge) …the world’s most profitable private entity that is in business to generate profits via speculation in financial markets is, drum roll please, the Federal Reserve. Stone & McCarthy (SMRA) estimates the Fed will make around $90bn profits in 2012. Of this around $87.5bn will be remitted to the US Treasury – a new record high (quite helpful when one is trying to avoid a debt ceiling using ‘extraordinary measures’ though we assume this is already penciled in due to its consistency).

Crude may test its 40-week moving average for the first time since April.


— West Texas Intermediate Crude has been due to emerge inside its Orthodox Broadening Top before going into its crash phase. There is a probable spike higher, which may touch either the 40-week moving average at 91.56 or, less likely, weekly mid-Cycle resistance at 94.18. This will be the first attempt to reach the 40-week moving average since April. Once the retracement is accomplished, the panic phase begins.

China stocks break above the 40-week moving average.


–Another great week for the Shanghai index as it has vaulted even higher this week, making a new 6-month high above its 40-week moving average at 2194.71. Having made a clear impulsive rally, it may be due for a pullback, possibly to the 10-week moving average at 2087.35. From there it may continue a very strong Primary Wave [C], possibly as far as the top of the Cyclical band.

(ZeroHedge) America may have the Octogenarian (Oracle) of Omaha but China has the Octagon of Oligarchy: an octet of the families that run the world’s (still) fastest growing, marginal economy, which by extension likely makes them the eight most powerful families in the world. So powerful, that Bloomberg has just released a series not only mapping out the various linkages and profiling said families but has appropriately dubbed them the “Eight Immortals.”

The India Nifty pauses at the top.


The India Nifty appears to have completed its Cycle Wave II high. This is a massive formation that has remained above 4500 for the last 3 years. The most prominent formation is the Cup eith Handle formation, which is now evident. A decline from here would be caastrophic, since there is virtually no support until it reaches its March 2009 low.

The Bank Index reluctant to decline.


— BKX managed to close just above its 10-week moving average at 49.28 again. This sideways motion masks the fact that the banking index has made its Trading Cycle high on December 12, just 26 days from its November 16 low and still has ample time to decline into its Trading Cycle low in mid-January. The panic may begin at any time now. I know I have been saying this for a long time, but this formation is prone to extensions, making it one of the most dangerous bearish formations ever written about.

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.

(ZeroHedge) For those curious why many people are scratching their heads how the market cap of Bank of America has nearly doubled in the past year, here it is: “Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined.” $64 billion is more than half the market cap of Bank of America as of this moment.

(ZeroHedge) The Departments of Justice and Treasury are pretending that criminally prosecuting criminal banksters will destabilize the economy.

The exact opposite is true.

Failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.

After all, the main driver of economic growth is a strong rule of law.

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

Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security. The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model. At no time shall a reader be justified in inferring that personal investment advice is intended. Investing carries certain risks of losses and leveraged products and futures may be especially volatile. Information provided by TPI is expressed in good faith, but is not guaranteed. A perfect market service does not exist. Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment. Please consult your financial advisor to explain all risks before making any investment decision. It is not possible to invest in any index.

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3 Responses to The Euro Top is finally in. Weekend Update December 28, 2012

  • Meir M. says:

    Sir, you posted prior to the political event and the “wild stock market” start of 2013. I would have expected you to relate to latest events.

  • Meir M. says:

    I am especially curious about your opinion on the sharp drop in the VIX two days in a row now.

  • stephen waldman says:

    Hello Tony, you will eventially will be right, a lot of volatitly in 2013 then the big bear market in 2014 and 2015. You should study your cycles better.

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