The 1,262 back test of the head and shoulder’s neck line is next up. A failure at that level will bring more shorts into the market and force some disciplined longs out.
As stated in prior posts I have to imagine this market since 2009 has instilled very bad habits. Stops are not honored. Longs are never sold at a loss because they will always turn green. The longer this game has gone on the more emboldened traders have become. More leverage, more option trades. Anything to squeeze more yield out of a market that is drier than Death Valley. Traders have dogged a bullet a number of times. When faced with a margin call markets have moved higher and the call went away.
The game is up now though. Margin calls won’t be going away. Forced selling at some point if not already is coming back to this market. I would bet a vast majority of traders who bought the ES futures when SPX was at 1,249 failed to sell when the market swooned lower. They got lucky and turned a nasty loss into a winning trade. That is assuming they sold when they had the chance. That is the type of risky behavior I am talking about and the kind that will crater this market.
With that said below is an updated 2007 comparison and a few notes regarding today’s market.
Oil is rolling over hard as is copper. Oil is now down 9% since last week and copper 5%
USD/JPY continues to move lower as does the USD/CHF even with recent margin hikes
Treasury yields continue to move lower with the 10 year now at 2.59% and the 30 year at 3.87%. The following chart should put this in perspective.
2007 Topping Pattern VS Current Market
This continues to play out although the past few days the current market seems to be acting on a much faster time line.