Wednesday, July 27, 2011

We have arrived at a critical junction

Time for a market update as I feel we are currently at a critical junction for the financial markets.

The VIX is signaling an end to the high level of complacency that has gripped the market since mid-2010. Any number of events could trigger a selloff resembling the one after the Japanese tsunami. However, I feel that the upcoming pullback could be severe if not handled correctly by the world's policy makers...... and my faith in government to handle these matters isn't great.

The VIX has started moving aggressively northward in the last week. The S&P 500 has also began a small pullback after not being able to challenge the April highs. The market seems vulnerable right now as it's back below the 50 day moving average and still a few percent away from it's first pivot support. The S&P has also hashed out a nice head and shoulders topping pattern. If the neckline breaks, confirming the pattern, lookout below. I think the likelihood of this happening is fairly high at the moment considering that market internals have already started to deteriorate and worldwide risk is high right at a time the slow recovery is falling apart. Look for a clean move below the S&P 500 1250 zone to confirm the start of a larger downtrend and a new bear market.

Events most likely to be a catalyst:

1. Sovereign Debt Crisis
2. European Union Banking Crisis
3. Geo-Political Event
4. China Bubble
5. Rising Inflation and Interest Rates

S&P 500 Bullish % Index

Volatility (Weekly)

S&P 500 (Weekly)

Location:We've arrived at a critical junction

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