Odds favor a continuation of the sell off.....

This coming week will see the end of May. As we approach the summer months the market looks like it is ready to roll over and do some major damage to your investment accounts. The start of the week will be interesting as the "Momo's" are reacting (pre-markets) to the supposed good news from Greece and the bulls may get an early lift on Tuesday. Later in the week, reality should set in once again and the bears may gain control.

Here's a chart of the SP500 (weekly) and  as you can see it is signalling a top, either intermediate or longer term, is forming, The indicators in the lower windows are arranged from top to bottom for their signals. The early signal in red has already triggered a sell signal as has the intermediate indicator in the middle window. The last signal was given this week on the longer term indicator. We may get a bounce here and there but the down side seems to be the direction going into summer. The 1150-1125 area is the first area of interest. A break below 1292 is key.

Keep your eyes on the VIX. It is starting to move up but has a long way to go before a major bottom forms. (Remember the VIX is inverted to price action and a peak is a bottom) The chart to the right is a monthly snap shot of the current action. People are not taking the European problems very seriously and it will really catch them off guard when the bottom falls out.




Here's an updated monthly chart showing the SP500 and we have a mixed bag on the indicators. We have some that are showing a divergence is taking place with price and some of the longer term indicators are just starting to top. Given where we are on the daily and weekly signals we are looking for confirmation on the monthly very soon.

There is an old saying that goes like this "It doesn't matter until it matters" and then it's usually to late to do anything about it. People tend to get complacent about global issues because it doesn't seem to be affecting them until it blows up. Now is the time to get prepared with your plan of what to do when things begin to change. 

For the coming week watch.......SP500-1292 level.

The FED induced rally appears to be coming to and end and the correction that has been over due for months is now upon us. One of the problems with kicking the can down the road is that one day the small problem that started it all has grown to a beast that's almost impossible to corral. The chart below is an overview of our forecast shown in the past posts. So far its right on track. The market has now moved into an oversold condition that may spawn a rally. The norm would be for a short move up to work off some of the oversold condition and then a resumption of the downward spiral. The wall-street bankers know that if they don't get in here with buying support and push the FED to muster one more QE attempt, this market could get away from them in a hurry. That the FED and the Wall Street zombies can actually muster a coordinated effort is purely speculative at this time.

The chart below will give you an idea of where the key resistance levels are for the short term and why they are important. The first and major level to watch is the 1292 area. The market ended the session just above 1292 after touching late in the day. 1292 also happens to be the 38% Fibonacci retracement level and combined with all the trend lines and longer time frame resistance levels  (12 month moving average is also 1292) that run through that area make it a critical level to hold come Monday.

Here's another very important indicator flashing a major warning signal. The VIX index (monthly) is starting to rise and it has broken through the first key level at 20. Remember the VIX runs inverse to the market. When its rising the market tends to fall. When its falling the market usually is rising. The red arrow on the right side of the chart shows market direction which is red for falling. This move in the index means we are likely in a major move lower as the complete mood of the market is changing to a bearish bias. Note the red indicator in the lower window of the chart. It has made a lower top while the SPX500 index in blue made a higher high. This divergence is setting up a top for the market.

Here's a chart from the "Stockcharts" newsletter. It shows the performance for the key ETF sectors in the SP500 index for the first two weeks of May.  No place to hide at the moment. Cash? Stay safe.

Current status of the Fed sponsored rally.

So where are we? The Global markets are beginning to wake up to the fact that there is no easy way out of the mess we are in. The Dutch Government resigned a week ago and Spain and Italy are becoming the next "Greece's".  France scrubbed Sarkozy and the Middle East is boiling over. Greece could blow up over the weekend and yet the Wall Street news has been centered on what a great earnings season we had. (Even though guidance going forward is weak)

The week of May 7th  saw another attempt  by the market to try and break out of its trading range of 1360 to 1420. Friday a valiant attempt was made early and then fizzled in the late afternoon. The three (3) line break chart to the left shows we are still headed towards 1340 and we may see a break of that area early next week. It remains the  line in the sand for the SP500. If the 1340 is breached to the downside in a meaningful way, we have a ways to go before we see the next support level at 1250 or so. Watch for news from Greece Sunday.

Just to try and paint a picture of where we are likely headed, please look at the chart at the right. A picture might help get your mind around the idea that the markets tend to move in long cycles and the verbiage the Talking Heads on TV use to explain  the markets nuances is nothing but hyperbole and a general  waste of breath . Here's the Kondratieff wave that covers a 55-60 year cycle. The markets are designed to forget the past so that they continue to repeat the failures of their predecessors. Note the timing for the next bottom is approximately  2013.

Below is an update of our forecast model for the first half of 2012. The SPX500 remains on track for the moment and if we are correct, it is beginning a third wave down which could be very swift. Keep a copy handy and check it at least weekly. The index ended the week at 1353.

One of the problems this market presents us is where do you put your money if you want to stay the course. The following charts will give you an idea of the problem of trying to find a safe haven.





Here's a chart for Copper and it continues to want to find lower lows. Copper is known as "Dr. Copper" as it is a key metal used everywhere thus a good forecaster of the future. When its rising the markets are healthy. The opposite is also true.

Now look at Gold. It's riding on a very long term trend line that if broken could send gold much lower. Gold will be an excellent place to place a bet or two but likely it will take some more time to unwind before it starts to move higher.

How about hiding in Technology. The QQQ's (NDX-100) is the proxy for the tech stocks but although it is holding up a little better than the senior indexes it to is beginning to lose momentum. Look for the 60 area for a bounce if the weakness continues.







One last chart to take a look at. The VIX index (volatility) measures fear or complacency on the part of investors. If the VIX is rising it reflects growing fear and if it is falling it says the investors are getting complacent. When the index reaches an extreme we should look for a change in direction. Right now the index is finally starting to rise, which is a bearish signal, and it will need to break out above the 20 level to confirm the move lower is under way. It closed Friday at 19.89. A move lower is just a head fake if the index doesn't rise.

It's boring but CASH is still king in this environment.