S&P 500 (SPX) - Calling it a Top

S&P 500 Index and global stocks as a whole have been enjoying quite a fancy rally for the last 6 months since the Lows of October 2011.

I could skip the fact that the rally since Dec 2011 is unfolding in a perfect 5 waves pattern. I'm much more interested in my favorite Bollinger Bands that are quite overstretched just like any other technical indicator, pointing to the unsustainable state of the trend at these heights.

Seems to me we are back into the good old days (2004-2007) when we had the Carry trading in FX and all the stocks markets were fostered by the steady selling of YEN for all other higher yielding currencies.

I might just call it a hunch but I'm rather sure we witness a good correction at these lofty levels.

S&P 500 (SPX) Index - Consolidation Range at the Top

SPX is trading inside the 1340 - 1360  consolidation Range after the reversal off the recent Top around 1377.

The SHORT Perspective::
The Upside is Capped by the 20-Day MA. I have 1325 and 1280 as immediate Targets of the current correction. All Technical Indicators are in Reversal mode and below 1340-1325 I'd expect an acceleration of the current corrective move.

The LONG Perspective::
The 20-Day MA at 1359 is the threshold - a Close above would signal price will need to touch the Upper BB at 1377. Still I'd view the current phase of the market as Horizontal consolidation and I'd expect the Bollinger Bands to show further contraction as the Distribution phase unwinds.

AAPL - my favorite SHORT candidate + Markets at critical juncture

Calling tops is an ego play anyway I had this feeling we are at a critical juncture here and wanted to post a reminder and make a check on the broader picture and especially this, favorite to the whole world, super cool stock AAPL.

Everybody loves Apple and everybody wants or already has iPhone / iPad / iPod / Apple TV and whatever this company produces. Checked the current P/E is 15 on BBG and it looks cheap. Anyway I like that everybody thinks it is a great company.


Short float is only 1.14% which is great - don't like much company in the boat for now.. All analysts rate it Buy/Out/Overperform. So the whole world likes it and most probably has it.

So what happens when everybody has it? There is nobody to buy and the price drops 15% in a day. 

I don't care when. I assume it might have a spike to 580/600 area which will develop into a Blow-off top and then there will be fun times for the shorts which I will be in.

AAPL - Weekly chart has that super Bullish 8 last candles closing outside the Bollinger Bands and Volume supports the Trend. So I will wait for a close inside the BBands and a Blow-off top / Island reversal as a sign.

AAPL >  Daily chart  has all the Technical Indicators I use in an overextended mode. They only lack a Reversal sequence of a 3-5 days to turn down and signal the Top.

Russell 2000 Small Caps have been the out-performers in the last 2 years so once I see weakening here I assume we have to fold, go Short and Hold. Weekly chart has the price action already inside the BBands, and the rally stalling in front of the May & August 2011 Highs.

Russell 2000 Daily chartshows clearly the encapsulation of the price inside a tight range which I assume as Distribution phase of the current 3 month rally. BBands has narrowed a lot which means congestion.

I believe when markets reach an important levels like 13 000 Dow they would like to pause and go back for a happy retreat. It's that simple.

Global Macro: Stocks are poised to collapse on the back of rising Crude and Debt. USD a necessary evil.

ZeroHedge published an interesting piece on the US Debt to GDP ratio passing the 101% mark:

http://www.zerohedge.com/news/us-debt-gdp-passes-101-global-debt-ponzi-enters-its-final-stages

So it is imperative to see the implications on the USD Index as a representation of the credit in the world reserve currency.

Obviously on the grand scheme the US Dollar Index is right in the middle of nowhere - it's in the average of the 6 year range after staging an impressive rally in the second half of the 2011. Now we are puzzled which one is worse the printing press of the FED or the sanity of the EU monetary union. And as the chart says we are equally poised to avert both of them so we are left right in the middle.

ZH shows that the FED debt monetisation is supported by the FED itself along with the next 2 most indebted global powers - UK & Japan. So what choise you are left if you want to diversify away from the Dollar?

GBP? Look at the economy and the scale of Debt-to-GDP ratio?

JPY? At the time it makes all time highs and the BOJ & MOF are desparate to weaken it through never ending interventions?

EUR? With the Greeks and the Italians and the Irish and the Spaniards?

How about Chinese RMB or Russian roubles?

Or simply buy Gold at the historic Highs and pray it is a true safe haven in the time of pending inflation. The Debt monetisation of the FED has been fueling the Stock rally in the last 3 months and the S&P 500 is making new High close to the H1 2011 High.

Problem is what stocks will do when commodities breakout on the upper end. Case in point Crude oil breaking above $105 and making things worse for the producers and transportation.

This simple fact finds an evidence in the classical technical analysis convergence between the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average which by the classic Dow Thoery are necessary to confirm each other and this obvious divergence calls for a breakdown.

Global Macro Update: Gold - EURUSD - Euro Stoxx 50 - 10Y Bund

Trend Channel Upper line shows 1645 as a potential target. First Support lies at the 1578 previous High in confluence with the 20-Day SMA.

EURUSD is trading right on the middle ground of the recent 1.40 - 1.46 range Supported by the converging 20 & 72-Day SMAs. Downside the 200-Day SMA holds the key at the major psychological 1.4 level.

DJ Euro Stoxx 50 Index is trending down with scope of 2599 Lower Channel trendline.

10-Year German Bund is trending up amid growing economic concerns and US and EZ Periphery Debt problems. Previous High at 131 is an obvious target for the current directional move.

Inflation talk > Major Assets Performance since Jan 2008

Global Macro Trends persist unnerved by the political tensions

Weekly S&P 500 chart has a pending Golden Cross (50 x 200 Week MA upside crossing).

FED's QE2 is fueling cash in the equities market. The index is a bit overstretched above the 50-Week MA and a possible test of the Golden Cross levels - approximately 10% correction to 1175 - 1200.

Dr. Copper is alive and kicking as global growth is recovering boosted by the Central Banks' persistence in keeping the loose money policy.

Crude Oil is sustaining a break above the psychological $100 mark. Next target lies at around $112 with technical indicators supporting the bullish case for Oil.

Gold is testing the all time High around $1440 and might correct till $1360-80 to test the long term trend line Support.

Silver is a bit overstretched above the 50-Week MA and testing the Trendline Resistance at current levels ~ 34.50. At this level I'd watch for a possible fake break and correction to 26-24 levels where the Long term Support should hold the present Trend.

US Dollar Index (DX) is trading right at the Long term Support trend line at 76.40-50.

FED's policy isn't signalling any hints of tightening and the debt buying program is weighting on the USD value. Below 76 level the trend should accelerate.

The 30-Year UST Bond is trading right at the 200-Week MA which held the last 5 tests on the downside. QE2 program is still in action so I'd be cautious on breaks below as I see limited downside until June '11 after which it will important to see the market reaction as the bond king Bill Gross asked who will buy the US debt after FED stops the POMOs.

The 2Year - 10Year Bond Spread is currently Bullishly steepened which suggests more economic growth and spell bullish sign for the equities.

The longer end of the yield curve - the 10Year-30Year Bond Spread has also violently reversed and steepened in the end of 2010 which supports the bullish case for the equity markets so far.

Global Macro Update

S&P 500 started to decline after reaching overextended level of complacency. While the pullback was much expected we must see 1235/40 broken to look for a bigger slide.

10-Year Notes have been in an oversold state for quite some time and need to hold above 119 for a move higher. There is a case for higher yields on the back of better employment data released this week however with the pending slide in Equities I'd look for a flight to quality pushing the Notes higher into the 121 level.

Increased Volatility in Precious Metals suggests a possible Distribution phase is in progress.

Price action around 1355 would determine the Short term sentiment in Gold.

Dr. Copper as traders call it is leading the Equities cycle and is still strong however just like S&P it is in pullback mode and we should monitor 420 and then 410 levels to offer support.

Last week's news of the large trader holding approximately 85% of LME's Copper is interesting and points to a possible squeeze just like the large exposure of the GLD ETF to physical Gold price might severely affect the price action once the public participation starts to fade and the holdings are started unwinding.