– The VIX has rallied to weekly mid-cycle resistance at 23.13, then declined in a final throw-under beneath the lower trendline of its Descending Wedge. The VIX will change to a buy signal once it breaks out above its mid-cycle support/resistance and Friday’s high at at 23.44. This week marked the Master Cycle low and possibly the lowest point for the VIX in 2012.
Although the VIX is lower, options skew(http://www.zerohedge.com/news/options-skew-another-canary-coalmine) shows a deep concern that the VIX may be headed higher.
SPX is at resistance and a cycle turn date.
– The SPX broke out above the support/resistance line (currently at 1272) that has dominated the market since the March 16 low. As a result, it has started 2012 looking bullish. However, it has arrived at the downtrend line (red) and its cycle turn window which falls between January 20 and January 24. What follows may be a four week decline that appears ready to challenge the weekly cycle bottom support at 1023.27. The smaller Broadening Top formation has an approximate target of 1016.00.
The NDX completes a triple zig zag to the apex of an Orthodox Broadening Top.
– The NDX has defied gravity by making a new high in a triple zig zag pattern. This is confusing many analysts who are piling into a “new breakout.” Not so. Wave B is the only corrective wave that may exceed the length of its predecessor wave A. Those who are more aware are afraid of a false breakout. Their suspicions may prove correct as the NDX also enters its cycle turn window. The formation shown in the NDX is an Orthodox Broadening Top(http://books.google.com/books?id=wklriRw9a1oC&pg=PA155&lpg=PA155&dq=orthodox+broadening+top&source=bl&ots) , which is a pre-crash formation.
By this time next week the breakdown should be apparent.
The Euro bounce is retesting the lower neckline.
– The Euro sports two potential necklines, the first at 131.64 and the lower at 129.44. The reason for the lower neckline is that there was no retest or pullback to the higher neckline, while the lower one is being retested. This may confirm the lower neckline, should the Euro reverse in the next couple of days. The 10-week moving average may provide additional resistance at 130.91.
Zero Hedge reports(http://www.zerohedge.com/news/eur-shorts-hit-new-record) a still rising commitment of retail traders to Euro short positions. It seems that, even in a countertrend move, the speculators are doubling down on their positions. Could the rally possibly extend to the higher neckline? Stay tuned.
The US Dollar may have established a new neckline.
– The US dollar may have formed another Head and Shoulders neckline while potentially confirming its earlier one. Support from the 10-week moving average is exactly at 79.84, so a reversal to higher levels early next week would be no surprise.
While the commitment of traders remains strong in Euro shorts, there is room to grow in the commitment of traders to be long the dollar. The US dollar breakout above its Head and Shoulders neckline followed the breakdown of the Euro below its Head and Shoulders neckline by nearly a month, giving the dollar rally room to grow.
Gold breaks, then retests its three year trading channel.
– Gold bounced from a new Head & Shoulders neckline to retest the lower trendline of its three-year-old trading channel. It is now caught between support (neckline) and resistance (trendline). An unsuccessful retest of the trendline establishes the new trend. Most analysts aren’t looking at this chart, since the majority of opinion (http://www.zerohedge.com/news/longer-term-perspective-gold-and-more-nomura) is still bullish.
Are U.S. Bonds starting a reversal?
– The recent new highs in USB do not appear to be confirmed by RSI or the Slow Stochastics in the weekly chart. This is troublesome and suggests that investors lighten up on long positions in USB. Now a potential reversal appears in USB.
…in the past 7 weeks(http://www.zerohedge.com/news/foreigners-sell-record-85-billion-treasurys-6-consecutive-weeks-time-get-concerned) foreigners have sold a record amount of bonds, we now get confirmation via TIC that in November the selling continued, especially at the biggest non-Fed holder of US paper, China, which saw its holdings down to $1,132.6 billion, the lowest in the past year. Yet where the selling is just relentless is in Russia, which has quite demonstratively slashed its US Treasury holdings in half in the past year from $176 billion to under $80 billion.
Crude crossed below its 10-week average.
– West Texas Crude closed below its 10-week moving average on Friday. This strongly suggests that the uptrend may be over and the next downtrend is upon us in crude oil.
The embargo of Iranian oil(http://www.zerohedge.com/news/west-blinks-iran-embargo-likely-be-delayed-six-months) may take a back seat to political concerns, such as a presidential re-election in 2012. The next downside price target is Cycle Bottom support at 65.96, which should be challenged in the next 4 weeks. Of course, that means the Head & Shoulders neckline will have been activated by then.
China stocks also retesting its neckline.
The Shanghai Index retested its neckline at 2319.00 on Friday. This suggests that the decline may continue unabated through mid-February for the Shanghai Index. The Shanghai Index is also in a turn window that may be activated early next week. The decline that follows may be the steepest in this series, targeting the mid-1400’s.
The India Nifty index has a new (lower) neckline.
The India Nifty index has rallied beyond a prior hypothetical Head and Shoulders neckline while making a trading cycle high that was due this week. It is now about to resume its decline to its new Head & Shoulders neckline at 4531.00. This lower neckline also gives the Nifty a lower minimum target. The reason for the move is that only 50% of all Head & Shoulders necklines are retested. Virtually none are exceeded at the retest. That invalidates the earlier formation.
The banking index has finished its retracement.
The BKX rally this week managed to exceed its late October high in a double zig zag. These formations have the primary purpose of buying time. In this case, the BKX needed to match up its peak with that of the other equity indices.
The magnitude of this decline will be enormous. The cycles suggest a potential acceleration in the decline within the next four weeks. Perhaps it may decline below its massive head and shoulders neckline at 32.56. A decline of any magnitude in the world’s largest banks(http://www.zerohedge.com/news/top-three-central-banks-account-25-developed-world-gdp) may have far-reaching effects on our way of life. I hope you are prepared.
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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