Oct 6

Weekend Outlook for 8th October 2012 – Bulls exhausted – still in a topping process since 1475


After markets reached a high at SPX 1475 when Ben Bernanke announced the QEternity – markets has not been able to move higher and higher – as everyone expected markets to do on the QEternity.

I have a question for you – what if markets suddendly get a correction or hard move down – what can investors then hope for? QE 2 infinity or…..? NO , Ben Bernanke imo did a bad thing to make it unlimted, because now markets have priced much of this in already and they now can’t hope for QE4 or QE5 as we already have it all on the table when its unlimited.

Last week I were short in mkts from 1463 area and as we could not break below 1430 and started to rise , I took mini profits on shorts on Thursday. As markets had a big spike early Friday I saved a lot doing this , and actually I already started to buy back shorts again on the spike on Friday near 1470 as I still believe we are in a “topping process”. This means ,, that we MIGHT have a final shot higher early this week – to then form the bearish divergence as you can see on the SPX chart. But it is also very possible that markets could turn down as soon as Monday this week.

Its pretty light on Monday , so dont expect much , earning season begins on Tuesday with Alcoa and I think overall the earnings will be weak and not help markets at all, rather the opposite.

Right now I got long a bit shorts on Friday on the pop but have a good amount cash ready JUST IN CASE we get the final pop higher in markets.

So I will give bulls early next week to show if they cant make a new high or not, if they cant make a new high I will be loading the boat up on short side as the next drop in markets could be very big to downside as we now have very clear bearish divergences all over the place.

1. VIX is down to the same levels where markets had a short term top or got down to it on Friday as the markets spiked higher. VIX is at very low levels and indicate that we have no fear in markets, fear could spike very easy and therefore the downside risks is there.

2. OIL is the one thing which makes me believe markets might have a final push higher early this week – if not, sideways grind higher,, as oil looks like it could push somewhat higher early this week. But the overall pattern on oil is bearish so if it gets higher I would short it. I recommended to buy USO or oil long at 32s and so far it got a nice run up since then this week.

3. Dollar might have found some kind of support, but still not confident if it goes a bit lower. Dollar on sell signal on daily chart, but if oil goes higher on monday I will get a buy signal and that shows that bears could very well be back fast.

Conclusion:
Bullish: Oil and Dollar suggest we might have more upside left early this week – so be prepared for this, if we get more upside early this week I will be loading shorts heavy as we then have a major bearish divergence on daily chart – the one signaled the major tops recently and the one signaled major bottoms too.

Bearish: VIX is very low still , could go a bit lower, but a bullish pattern forming which is negative for markets. Also QQQ forming a clear top head and shoulders pattern which very well may play out. Breath indexes is showing weakness and is a warning signal too, we might have begun a correction at 1475 in the markets, but I’m not sure if we get a final push to 1475-1500 for the final one.

All in all – my plan was to add few shorts back on Friday as a starter position , got some small caps + cash. If we drift higher early next week I will be loading boat up on shorts as I believe the next drop in markets should be very weak as the divergences tells us to be careful.

 

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