— The VIX has made a lower low, but remained above its Ending Diagonal formation. The 10-week moving average remains at 19.20. The VIX is now 35 days from its low on the morning of February 3 and has yet to make significant progress. This is three weeks longer than it took for the Flash Crash to get underway on April 26, 2010. This does not negate the prospect of a major cycle high next week.
For many traders, a rise above the 10-week moving average gives a buy signal in the VIX. It appears that the VIX may have been suppressed to deny them fair warning of what is about to take place this week. Note the inverse Head & Shoulders pattern, which, if crossed, gives a target near the 2008 highs.
SPX has a new wave count.
— The SPX made a marginal new high above its May 2, 2011 high. This rally is being dominated by Primary Cycle patterns. If the pattern holds true, next Wednesday may be a Primary Cycle low. The 10-week moving average at 1335.36 has been tested last week.
A decline below that level may induce a crash. The Cyclical Model target of this decline is the bottom of the weekly trading channel at 1029.19.
The NDX closed at a new high.
— The NDX closed at a new weekly high, but is showing some signs of stress. Friday’s gain may have been solely from traders escaping the falling Euro. If so, they may have jumped into the NDX right at the top.
Please note a small broadening Wedge formation at the peak. It appears that the next decline may well challenge the August-October lows.
The Euro gets a bailout, Greece defaults…the 800-pound gorilla emerges.
— In a classic example of “buy the rumor and sell the news,” the Euro sold off from its retracement high the day after the Greek bailout was approved. It closed just above 10-week support at 130.81. There is a new, down-sloping Head & Shoulders neckline at 126.24 with a minimum target near parity. Not shown in the weekly chart is an Orthodox Broadening Top formation with the trigger point at 128.50. This is a crash formation with an average target below 100.00.
It’s official now that Greece has defaulted. (http://www.zerohedge.com/news/greece-has-defaulted-here-where-we-stand). Now we find out about the “other” Greek debt. (http://www.zerohedge.com/news/eight-hundred-pound-greek-gorilla-enters-room). This is “off the books” debt that also defaults when the sovereigns default. When we had been given data about the Greek debt, we had been misled. Here is $107 billion(http://www.zerohedge.com/news/greek-%E2%82%AC107-billion-contingent-liability-gorilla-exposed) of OTHER debt; guaranteed debt that does not appear to be included anywhere in the official Greek sovereign debt figures. Contingent liabilities that are not counted any longer perhaps as the accepted manner of doing business now in Europe. Most of these issuances are governed under British law with “Default” clauses and “Negative Covenant” clauses.
The US Dollar rallies above all supports.
— The US closed above its 10-week moving average at 79.72 on Friday. The probability of a panic rally this coming week is very high. Directly overhead is an inverted Head & Shoulders, which may not only take the dollar out of the triangle, but in all likelihood may also breakout to a new five-year high. Not only do we have a Greek default, which may start the dominoes falling in Europe, but the rising dollar will put our partnership with Europe in jeopardy. This will put the $600 billion loan by the Federal Reserve to the European banks immediately under water. In other words, the rally in the US Dollar may be the start of the demise of the Federal Reserve and the European Union.
Gold closed above 10-week support, but it may not last.
— Gold remained flat as it is probable that margin calls had to be met from the prior week’s flash crash. This move crossed the 3-year trendline, losing any further support there. It managed to close above 10-week moving average support at 1704.14, but support may not hold as gold is due for a Master Cycle low later this week. The probability is high that it may cross its Head & Shoulders neckline near 1525.00, triggering a cataclysmic decline. The need to raise cash will trump the allure of the precious metals for the time being.
It is interesting that ZeroHedge (http://www.zerohedge.com/news/chris-martenson-interviews-robert-mish-front-line-evidence-we-are-nowhere-near-gold-bubble) still carries a lot of pro-gold articles.. The cycles have been calling for a top for some time, with significant downside potential. I wonder if we’ll be reading the same opinions a month from now?
U.S. Bonds lose all support into expected Master Cycle low.
— USB is now due for its Master Cycle low, which is expected to arrive on March 14. It is also at the trigger point of a small Broadening Top formation that has an average target of 112.00. It appears that the “credit event” in Europe may also affect the bond market in the U.S. as well.
Although the Chinese and Russians have been selling billions of dollars of U.S. bonds, no one is expecting a potential 20% decline during a sell-off in stocks. This will severely affect those who still believe that Treasuries are a safe haven.
Crude bounces at 10-week support.
— West Texas Crude bounced at the 10-week moving average at 102.38. Once beneath that support, West Texas Crude is destined to fall as far as Cycle Bottom support at 66.95…possibly in the next week. This may well trigger the Head & Shoulders pattern at 76.25, which may cut oil prices to one-third today’s price. This may not be as farfetched as one might think. The week will tell.
China stocks stall at a minimal retracement.
The Shanghai index stalled short of a Fibonacci 38.2% retracement. It remains above its 10-week moving average at 2328.67. Just beneath it is Cycle Bottom support at 2223.53 and the Head & Shoulders neckline at 2132.63. This put the Shanghai in the position of losing about half of its value in the next decline. Could this be the waterfall decline that Martin Armstrong had talked about?
The India Nifty may be ready for its plunge.
The India Nifty bounced from its 10-week moving average at 5266.74. This is merely a minor retracement that will be superseded by a decline beneath the 10-week and mid-cycle support at 5080.19. The Head & Shoulders neckline is next and may bring acceleration to the India 50 index. It is uncertain whether Cycle Bottom support will provide a bounce or whether the index continues its decline immediately.
The cycles now call for an initial low by mid-March and an even deeper low by late April. It is certain that wave 3 will be one to remember.
The banking index gives a very bearish signal.
–Despite its almost attaining its mid-cycle resistance at 46.76, the BKX closed the week with a doubly-indicated Orthodox Broadening Top formation, a crash warning. The 10-week moving average at 44.26 is the trigger for this probable change in trend.
If the Head & Shoulders pattern is correct, the magnitude of this decline may be enormous. The intial decline to or beneath the Head & Shoulders neckline may take place by March 15. What happens after that is anyone’s guess.
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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