tuesday brainstorming – red alert for stockmarkets
1. Well the overall performance of the market indicates a top is imminent – I still think we get a minor rally though the next days may be even up to 4 weeks ( the later version is rather reserved for QE3) after the Senate approves the phony debt deal. SPX has a crucial neckline at 1260 of a Head and Shoulder pattern which is also confirmed by monthly charts for a top. DOW has to defend the 1200o level or ugly things will happen.
Those ugly sell off is just a question of time not in question by itself as the fundamentals deteriorate in a fast pace and the market looks more and more vulnerable and the probability is shifting towards rather sooner than later as one outperforming market The German Dax shows it has shifted the strength pattern rather to weakness as we have the worst european earnings season in 5 years with 53% below estimates..
This debt deal is also far below what rating agencies were looking for – they will not come out and cut the rating right now, since that is an extremely market sensitive event and we can bet some insiders will know before the public. In the near term future it is very likely though with 2-3 months.
Europe gets worse by the day and this pathetic Greece rescue 2.0 will soon hunt the EU leaders as the small PIIGS were just the warm up phase – so no place to hide as Japan is already broke and China keeps up the phony economy as long as the cash flow keeps rolling in.
The mode from here on should be sell the rallies or the break below the above mentioned levels. Being careful is the crucial aspect though since there is still the option that an QE3 announcement can trigger a 10% rally.