SPX technical outlook for October

On the left hand, the SPX weekly and, as you may notice, we are in a unique situation of capitulation. At no part in the 2000-03 decline, did we had such a steep decline in one single leg and so deep below the Bollinger band (green area). What you also can observe is that the only steep decline in the former time frame was the final one. We have a combination of 2000-20003 combined with the crash of 1987, since we lost in 3 weeks around 30%. We are about to reach/close the 950 support area, which will trigger a counter wave at some degree. What makes me even more confident was the news that what I claimed was not happening yet happens right now. That is the pension funds and life insurances join the panic party. They are heavy sellers of futures for stocks and buy government bonds in sizable proportion. Aviva, one of Europe’s bigger insurance groups, claimed we had 40% more down potential and that it was hedging heavily its stock exposure. That’s good news that we are very close to a significant low. The timing is not on the spot and we will also, in my analysis, see lower lows until the end of Q1 2009. But in between, we see a sizable rally as well. Nevertheless, very short-term we might see wave 4 up followed by wave 5 of bigger wave 3 down until early November with the potential of wave 4 at 1050 and wave 5 of 3 down to 930-950. We also should see a kind of intermarket divergence with the NDX performing a bit better from now on for a few more weeks with financials still in distress. Libor rates made new highs today after the rate cuts, indicating that the stress in this sector is increasing but no surprise with insurance companies joining the party now.

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~ by behindthematrix on October 9, 2008.

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