Last week it was $SPX 2,300, today it’s Morgan Stanley pushing for $SPX 3,000. Oh it’s all so quaint. What they are doing is quite obvious. They are spreading fear. The fear of missing out, all on board, hurry, buy stocks. The motive? Selling supply. Alibaba is coming out with the mother of all IPOs and fees have to be earned. Note that this IPO is conveniently timed a day before $AAPLs big event.
September 8 and 9 are hence shaping up to be super important events for the market coupled with Draghi’s ECB announcement this week. Can one create a better confluence for a market orgasm? Probably not and it’s all right ahead of September OPEX and we know we are looking for a low into the Thursday/Friday the week before OPEX.
So the structure is lining up nicely for all to get what they want: Pumping targets right into a huge IPO/Tech announcement event and then rug pull. It is one scenario of several and it is one I am keenly aware of.
While I’m not calling for a top (nobody can) I am noting multiple patterns that exhibit topping patterns similar to some we have seen before. Tops come in all sizes and shapes, but they have a familiar ring to them.
Last week in signs I pointed out the similarity to the $SPX topping pattern in 2007:
This latest rally has yet to show a definitive top or reversal move, but the steepness of the latest advance has certainly been met by confluent trend line resistance on the $ES:
But the $SPX is far from alone. Have a look at the monthly #DAX chart:
Note that both the 2007 and 2011 tops were exhibiting strong bottom candle action off of support, 7,500 and 7,000 back then. Currently the comparable level support sits at 9,000. The current pattern leaves room to 9,800 or so and a break of 9,000 would invite a rather violent rush to the downside with the 8,000 as a likely target.
The weekly chart of the $EWG ETF makes this point even more clearly.
Note that the weekly 50MA has been a key pivot for years and we just recently dropped below it and are now showing a nice bear flag. This week is all about the ECB of course. European growth data has been lagging these past few days (to put it mildly) but the anticipation of QE has dropped the Euro. BOJ continues on a similar path and the Yen got crushed overnight resulting in a massive Nikkei rally. So note all that is happening here are currency games that are pushing equities into multi-month topping patterns.
The other big topping pattern remains in the $TF ($RUT futures):
The upper push here resides in the 1190/1200 area. QE is ending in October and the $RUTs P/E sits over 50. It is exactly with this backdrop that we are seeing people trampling all over themselves raising $SPX targets.
From my perspective we are about to see some of the most exciting trading in years. This does not mean we are crashing or collapsing, but as even today’s action shows surprises are to be had. How to trade all this? My September strategy for premium members is outlined here.
Categories: Daily Market Brief