“Really Significant”

We have officially begun the subscription process for our monthly Insights and Short Term Review through our website (www.wminsights.com). The response has been gratifying. This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions please e-mail us at customerservice@wminsights.com.

In Tuesday night’s blog, we said that it would be the last post of the week unless something “really significant” happens. Well, it appears that the unfolding debt crisis in the Middle East could be the catalyst for a significant day. Most global markets were under pressure on Thursday, and those pressures are continuing today. The US market, which was closed on Thursday for Thanksgiving, is likely to play catch up; as this is being written, the S&P futures are down over 33 points. That translates to a 3% decline for the cash index to about 1077.

Obviously, a lot can happen during the trading day, but let’s put a 3% decline into perspective. We had to go back to June in order to find a day when the S&P closed down at least 3%, but we only had to go back a month to find a daily range in excess of 3%. Moreover, a move to 1081-1072 would represent a 38.2%-50% retrace of the rally from the November 2 low at 1029. A decline to 1077 would, therefore, only be a normal pullback within the smallest wave degree.

S&P 500

So, the problem is not today’s anticipated catch up; it is what could come afterward. Such a decline would complete a top formation and would decsively breach the post-March trend line (currently at 1108). It also comes two days after the daily Coppock Curve turned down and joined its already weak cousin, the weekly Coppock (readers may remember that we think that the weekly Coppock could remain under pressure through the rest of the year). In addition, most advance-decline lines (as well as On-Balance Volume) did not confirm the recent highs, sentiment is excessively bullish, and cycles are exerting downward pressure. All of this implies that the market is in position for an intermediate decline, not just a one-day wonder.

As mentioned in Tuesday’s post, a violation of 1100-1085 would likely open the door for a test of 1029-1020. We have said many times that a break of 1020 would confirm that the post-July rally was over. That would be the more important event.

As for resistance, the index was not able to decisively pierce the downtrend line from the 2007 high, nor did it seriously challenge the 1121-1156 resistance range that we have regularly highlighted.

In sum, we have suggested that the downside risk was beginning to outweigh the upside potential in terms of both price and time. Early indications are that today’s action may begin to put that observation to the test.