Well, it took its time but the USD finally broke through its descending trend line and the equities market did what was expected.
We can see from the above chart that not only did it break through but it also successfully back tested the breakout which could suggest that the equities market is in for a bit of trouble in the near term. We can see that there was a failed breakout the day before but this time it appears to have broken free.
The S&P500 in its last trading session closed at 1276.34 after forming a new high at 1302.67. As suggested in previous market wraps these levels would prove to be challenging for the index and this view has been proven to be correct.
The following 99 minute chart of the S&P500 shows us that we have broken down through a minor trend line that has been in operation since early December 2010. The size of fall is an indication from an Elliott Wave perspective that we have completed a pattern at a lower level and are now moving down in a higher level pattern.
At this stage we can only call this a retracement and it will require a break down through the 1260 level to determine whether it turns out to be a significant retracement.
The daily chart below puts it in a slightly larger time frame perspective.
If we assume for the moment that we are in fact in the process of starting a significant decline then we can use Fibonacci levels as likely turning points. Using the range of the move that commenced on the 1st July 2010 (1010.91) and completed on the 28th January 2011 we get a range of 291.76 points.
This leads to the following Fibonacci levels as possible future turning points:
12.5% 1266.20 2.8% fall
23.6% 1233.81 5.3% fall
38.2% 1191.22 8.6% fall
50.0% 1156.79 11.2% fall
There appears to be good support in the 1180 to 1200 zone so I would think that the 38.2% Fibonacci level would be a good initial target level.
The following planetary chart has a Neptune line (grey) at 1203, a Saturn line (blue) at around 1180 and an all important North T Node line (orange) at around the 1170 level. From a planetary perspective these are all likely bounce levels.
The lead from Wall Street last night has left the ASX200 futures contract suggesting a fall of 49 points on Monday’s open. The ADRs on the NYSE has BHP down 2.94%, RIO down 3.78% and WBC down 1.61%. All indications are that the Australian market won’t be very pretty on Monday.
The following 99 minute chart of the XJO shows us that as with the S&P500, a key support trend line has been broken.
The daily chart of the XJO shows us the medium term channel that the index is travelling within. It would have to fall significantly to break out the bottom of that channel.
If we carry out a similar exercise of determining likely bounce levels for the XJO as we did for the S&P500 we come up with the following Fibonacci target levels.
12.5% 4756.26 1.7% fall
23.6% 4682.61 3.2% fall
38.2% 4585.74 5.2% fall
50.0% 4507.45 6.9% fall
The primary range used for the above calculations was the low of 4175.7 made on the 20th May 2010 and the high of 4839.2 on the 19th January 2011. The following planetary chart for the XJO gives other potential bounce levels. The blue Saturn lines are currently at 4630 and 4672 and the orange Uranus lines are currently at 4478 and 4522.
Those who are still holding gold have had reason to put a smile on their faces as it moved from a low of $1307.00 to a high of $1347.00 today. At the time of writing this Market Wrap it was down at $1336.59.
It is still possibly too soon to get too excited. With the USD having broken up through a descending trend line and the equities market looking rather weak, gold should be the beneficiary of these events. Things will look more positive for gold once we get confirmation by the breaching of the upper boundary of that descending channel.
We can see from the longer term chart for spot GOLD that if it continues its downward journey there is support at around the $1280 level There is also some minor support lines at around these levels.
About a month ago I had suggested that we would get a significant low towards the end of January/early February. I obviously had my chart upside down at the time.
Unfortunately my particular cycle analysis methodologies can provide time periods for potential highs and lows. However during periods of volatility inversions can take place. This can lead to outcomes that are opposite to those expected. I should caution investors however that this correction whilst pretty severe in nature could be short lived as we have not had confirmation yet how serious this decline will be. This could still mean that we get a significant low in early February.
What we are currently seeing in US market is the first decline of significance since the 18th November 2010. At that time between the 18th and 29th November, the S&P500 declined 26.65 points. In the S&P500’s last trading session it had a range of 27.16 ……. that was for one trading session!!! This will undoubtedly have an effect on the Australian market as well as most other global markets.
As stated above we can see from the charts for both the S&P500 and XJO that whilst some minor trend lines have been broken, at this stage the major trend lines are still in play and hence it is still too early for the bears yet to come out and play. Until these major trend lines are broken there is still a strong possibility for the market to catch the bears unawares. If you look at what happened on the 16th July 2010 you will see that the S&P500 dropped 30.54 points in one session and it turned out to be a non-event.
For the above reasons I would just caution investors to wait for confirmation on this occasion before assuming that a major decline is about to occur.