Reply #1: Today's Market WrapUp [View All]

[ozymandius]

The Top Ten Signals That Global Stock Markets Have Topped
BY FRANK BARBERA, CMT

This week we continue in “wait and see” mode as our analysis continues to suggest that global equity markets are in the process of building an important top. Over the last few weeks, share price action has become, by and large, very erratic, with prices moving up and down in wide swings. This type of high volatility is a classic hallmark of topping action wherein the construction of a market top always takes several wild swings up and down over a period of time (usually weeks) to complete a distribution process. We have been mindful of this probability, and have tried to respect the powerful nature of this prior six month bull trend anticipating that the bull will not yield readily. In last week's comments, we noted that the S&P appeared to be near another important short term low, and that a rally looked in the offing. We said,

“While we know that the market moved down aggressively today, (Tuesday, June 12th), we also believe that last week's lows saw a sufficiently near-term, oversold reading on the major indices in order to establish a reasonably solid short-term low. Today’s action looks, thus far, very much like a ‘retest’ of last week's lows. As a result, we expect that the major stock indices should hold here and begin a counter-trend advance. In our view, a near-term rally should allow the market to continue to “hold up” over the next 5 to 8 market sessions and that rally should begin fairly soon—likely over the next day or two. On the upside, the island reversal gaps on the S&P near 1530 look like a ‘reasonable’ objective with 1530 likely very strong resistance.”

Not only has the market come back up across the range but the S&P ended up closely approaching its former high near 1540. Will it break through to new higher highs? Well, believe it or not, that type of behavior is still quite possible and it would not change our view that the market is topping in the slightest. In our technical studies, we see “potential’ for the S&P to press higher toward the 1560 area, which would be a likely maximum for the next few weeks, and likely for the entire move. That’s our “BEST CASE” outcome, and we would not give that more than a 25% chance. If, more likely, the S&P breaks back below 1520 any time over the next few days, odds will be increasing that the double top highs at 1540 will do it for this bull run, and that market will be running into more trouble in the days and weeks ahead. Of course, we continue to eyeball global markets, and we fear that the upcoming correction-bear market in stocks will be a global decline, a global bear. At present, we do not expect to see major downside fireworks before mid-July. At present rates, stock markets still have enough upside momentum to hold up a while longer. It is our best judgment that the month of July will see the downside action ‘kick off’ and run its course through the months of August, September and October. It looks like it could be a long disappointing summer. Of course, time will tell.

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