– The VIX has extended its decline to its cycle mean level at 24.61. This appears to be its true Master Cycle low, not October 17, as earlier surmised. As reported last week, a cross above 27.14 gives the VIX a Weekly buy signal (not shown), while a cross of intermediate-term Resistance at 34.71 confirms the buy signal in the VIX.

– The /SPX appears to have completed its Broadening “Flag” formation visible in the hourly and daily charts. This is a pre-crash formation. Confirming this pattern is another Head & Shoulders formation with a similar target. Short-term sell signals are generated at 1272-1275. A cyclical sell signal is generated at the cross of the cycle mean at 1208.72.

The last Cycle turn date was Wednesday, with a potential turn occurring on Thursday morning.  A follow-through on Monday morning (tomorrow) may confirm the turn and set the stage for a probable Primary Cycle low on Friday. While all eyes are on the European debt crisis, it seems that the US may be heading toward a crisis of its own. It seems that the Super Committee of Republicans and Democrats cannot agree on anything, much less how to save $1.2 trillion in Federal expenditures.

– The Euro appears to have completed its Wave 2 retracement at the 61.8% ratio on Thursday. On Friday it closed just above the Cycle Mean 141.46. A close below the Cycle Mean value gives us a cyclical sell signal. There is a new Head & Shoulders neckline at 132.00. When crossed, it will generate a minimum target of 113.88.

As AFP reports, “China’s state media Sunday warned that the country will not be a “savior” to Europe, as President Hu Jintao left for an official visit to the region including a G20 summit. Hu’s visit has raised hopes that cash-rich China might make a firm commitment to the European bailout fund, but in a commentary, the official Xinhua news agency said Europe must address its own financial woes. “China can neither take up the role as a savior to the Europeans, nor provide a ‘cure’ for the European malaise. “Obviously, it is up to the European countries themselves to tackle their financial problems,” it said, adding that China could only do so “within its capacity to help as a friend.” More commentary from ZeroHedge.

– The dollar has thus far made a 72% retracement from its first impulse high off the May 4 low of 72.70. It appears that it may have made its cycle low on Thursday, where it may have “split the difference” between two conflicting lows. We will know on Tuesday, November 1 since that is the final date on which to make a new low.

A new Cycle Buy signal will be generated above 75.44 in the dollar. The Broadening Bottom formation will also generate a buy signal ablve 77.75. The inverted Head & Shoulders pattern adds confirmation and impetus to the move.

– Gold appears to have completed a 50% retracement of its impulsive decline on Friday. Since it has crossed above its intermediate-term Trend Resistance, a sell signal may be generated by crossing below it at 1695.89. The cycle pattern called for a turn date last Friday, which I interpreted to be a low. Instead, there was an inversion. As a result, it appears that once a reversal has been made, Gold may be due for a lengthy decline into the end of the year. Once it crosses the lower trendline of its Orthodox Broadening Top, gold may confirm the pattern and its target.

The cycles suggest a significant low for gold in 2012. If it can remain above 750 at its 2012 low, the secular uptrend in gold may continue. However, should gold decline below 750, there may be yet another four years of decline in gold.

– This week USB confirmed that the uptrend in bonds is over. In the process, a Head & Shoulders pattern may have been made. At this point, the right shoulder appears unfinished, and we may see USB rally to its intermediate-term Trend Resistance at 140.38. This does not rule out a higher rally that may test the all-time highs. Cycle Resistance is at 144.78, so we could see that area tested as stocks sell off. Should the rally continue beyond intermediate-term Trend Resistance, the cycles suggest the secondary top in bonds may be near the last week of November.

According to today’s update in the H.4.1, the total amount of securities held in the custodial account for foreign official and international accounts just plunged by $20 billion, of which $19 billion was attributable solely to Treasurys: the second largest weekly dump ever. And since this total number includes both Treasurys, which are used for political purposes, as well as Agency securities, which don’t really serve much in terms of a diplomatic statement but are great at shoring up liquidity, one can assume that the relentless selling in all types of US paper has had one purpose only: to generate capital. As the third chart shows, that amount is substantial: in thelast 8 weeks foreigners have sold an unprecedented $93 billion across the custodial account bringing it to $3.392 trillion, the lowest since March 2011! (Source: ZeroHedge)

–West Texas Crude may have completed its right shoulder to an even larger Head & Shoulders pattern than anticipated in the prior formation. In addition, it continued to rally to the upper trendline of a Broadening Flag formation, indicating that a crash in oil prices may be at hand.

Those of you following my work may remember that the initial Broadening Wedge formation anticipated a possible low near 74.00. The August low was a near miss. The new broadening flag formation anticipates a low near 57.75. I would not ignore that warning.

The Shanghai Index may have put in its Master Cycle low and the 2011 Yearly Cycle low on October 24, two days prior to its scheduled bottom. Since then it has crossed above its intermediate-term Trend Support/Resistance line at 2427.33. Should it maintain above it, we may have a classic buy signal. A decline below the intermediate-term Trend Support turns the signal neutral, while a decline below 2307.15 implies a resumption of the downtrend.

While China may have its share of economic woes, it refuses to participate in the bailout of Europe and the U.S. “The last thing China wants is to throw away the country’s wealth and be seen as just a source of dumb money.” It appears to be waiting for the most opportune time to place its bets on its trading partners. I would call that “smart money.”

Good Luck and good trading!

Tony

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

www.thepracticalinvestor.com

Office: (517) 699.1554

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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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Related posts:

1. Weekend Update 10/22/2011
2. Weekend Update 9-9-2011