“Warning signs, warning signs, I hear them, but I pay no mind” Talking Heads
Equity markets have been unable to exceed Friday’s post-NFP highs but the near term price action looks corrective. Remember, I continue to believe we are in a 5th wave of intermediate degree so this is not the time to get bullish. Various other indicators are warning of increased volatility ahead so caution should be the watch word. Dr Copper has been hammered (as warned on the weekend), Crude Oil has reversed lower and USD/JPY looks to be at the crest of a 3rd wave decline unless it can regain Friday’s highs.
SPX – My 1887 pivot target has held the market’s advance so far and while the decline looks corrective, this is not the time to be adding fresh longs as risk is skewed to the downside. While Tuesday’s decline caught support at the 10 sma, it also printed a bearish engulfing candle reversal warning of greater potential risk to the downside. The daily chart below gives some perspective as to where we are in this rally, bumping up against a long term trend channel with multiple momentum divergence.
The near term SPX chart clearly shows a 5 wave impulsive advance followed by a 3-3-5 Flat correction allowing for new ATH’s. The main argument for new ATH’s is the structure of the DJT and BKX highlighted in the weekend with 3 waves into new highs which means the advance is not yet complete. Other markets such as Copper, Crude and USD/JPY are warning of a larger potential decline in the short term. If the equity markets can shake off these China and Ukraine concerns, the door remains open for new ATH’s. There is no clear evidence yet of a reversal so the benefit must be given to the bulls at this stage while trade below 1860 would threaten more downside follow through.
On Friday, the USD/JPY tagged the 0.618 Fib retracement with a retest of the long term trendline and reversed lower. With 3 waves up from the 100.75 lows, this count looks very bearish unless the bulls can reclaim new highs above 103.77
Crude Oil has broken down below 100 as suggested in my weekend update with initial targets in the 98.00 area where (a) equals (c).
Dr Copper has broken long term support threatening significant downside as it has now triggered my breakout levels with expanding volatility. A close below $2.893 would add confidence to the downside breakout.
One common theme of these charts is the recent decline across separate risk assets with correlations approaching 1 is a clear warning of liquidity risk. Take note and don’t be complacent.