Then we have the situation in Europe which has been leading to the upside since December. When our markets were wondering what would happen with the fiscal cliff, Europe didn’t seem to care. But the FTSE had a serious hiccup last week. Look at the chart, where’s the bounce? We didn’t have one. It’s amazing the US markets did as well as they did while European markets were dead in the water. Now it appears we could have what amounts to a 3rd wave low so I suspect this could be a neutral to decent week all the way around but here’s the next problem. If we bounce to start the week it opens the door for an inversion high as we hit the seasonal change point by Thursday. I’m almost rather see a wipeout the early part of the week because it would increase the probability we can have a real low as June 21 hits. But when I look at the situation in the SPX and VIX, it’s just not very likely to happen.
Let’s project is a little forward on the FTSE. What we have here is a test of the 200dma already looming in the not too distant future. They haven’t respected the 50 very much, have they? We have that 50/200 cross already working and you can see the 50 line rolling over. That’s trouble in anyone’s book. What does that do for our bigger time windows in the fall? It’s too soon to tell but if we manage to stay flat in Europe the time window later in the year could be a major inflection point one way or the other.
So as they wrestle to determine whether the SPX 50 day crumbles now or on the next spin cycle fear levels are going to have to rise above resistance here as well to get to an acceptable point where we can have a true bottom and a new sustainable move. I just don’t see it right now.
Finally, the EUR-USD had interesting calculations as it hit our target trend line. It has backed off the high but is only going sideways in what could be a triangle. We still can’t rule out one more high. We have a Fed meeting on tap to go along with the seasonal change point. I believe we have the capability of still being all over the map. We could still end up with a new high but when all is said and done, the real takeaway to this entire market is Europe not confirming whatever decent action in the US last week and the SPX not coming off the 50 in a clean manner. It might take some serious patience but I think we are going to see implications from this action sooner as opposed to later and quite possibly right after the seasonal change point. Simply put, I think it’s time for a bigger correction.