I have set the chart in a KAGI Format as it is a better style in which to locate various chart resistance and support levels in my opinion. You can see the significance of 1350 rather easily as well as 1362 - 1365.
When using this chart format to analyze a market in an uptrend, the RED LINES, which indicate sellers are dominating, should hold WITHIN THE LENGTH OF THE BLACK LINES. The latter refer to periods when the bulls are in command. Notice since December of last year, this has been the case. One can clearly see the impact that EXPECTED LIQUIDITY supplies from the Central Banks has had on this market since that time period.
This looks like the first REAL CHINK in the armor of the bulls in some time. If they are able to immediatey halt the decline and take price back through 1350, they will have dodged a bullet and will be able to talk up today's selloff as just another reaction in an ongoing bullish trend. If not, the odds will favor a deeper decline with a drop down towards the 50 day moving average near 1320 should the next layer of support near 1342 - 1340 fail to stop the bleeding. Were this last level to give way on a closing basis, the red line would drop below the last BLACK LINE and signal additional selling should be expected.
Let's see whether or not the market has factored in a worse case scenario regarding Greece and a China slowdown or whether there is yet another shoe to drop. The verdict is therefore still out but one thing is certain - the onus is on the bulls to perform right away.
There isn't going to be any slowdown of significance while the liquidity spiggots are still spewing ahead full blast. So Bernanke said no QE. Big deal. That position can (and will) change as needed to get Obama re-elected. It is a HUGE political cycle this year, and you can bet they aren't going to let almost certain re-election slip away from them now. Fundamentally, nothing has changed. Central Banks are easing and providing liquidity.
ReplyDeleteThe market was due for a 5% correction, and the Greece news tipped it over. Shaking out some weak hands and a little bit of consolidation and then right back to risk on is what I see. While equites certainly may have topped out, commodities certainly have not. Equities are topping out because inflation will eat into their bottom line, which will impact earnings. My .02.