The train has left the last station - WMA 22 Nov 2011

It's been a while since I analyzed the markets proper... partly due to myself being occupied with many different things as well as the volatility in either direction, and the large range consolidation. However, at the end of last week, a new trend started to emarge...

Let's look at the ES (S&P500 futures) first...

The weekly chart shows that last week was a potential end to the short rally, with indicators stopping short on being bullish (pun not intended). There seems to be a significant downside risk from the weekly chart.
The daily ES chart (right) clearly shows a breakdown out of the uptrendling support. Some see a triangle formation that has broken down as well. Indicators are suggesting that a downtrend started late last week, where a Sell signal was generated. There is now a clear failure of the moving averages. With a short trading week, it appears as if there is more downside over the next 4-5 trading days, likely to come close to 1130 as a short term target. Today, 22 Nov 2011, looks set to have an early morning bounce.

With the global economics and politics moving forward, the downside risks appear to be significantly high for the rest of this week.

At this point of time, when there is a lot of uncertainty and a potential breakdown of the European sovereign debt, a lot of money is moving places, mostly out of equity markets and into safe havens. One such haven is the US Treasuries, and this is concomitant of a rise in the USD dollar index as the markets capitulate. Looking at the ETF for US Treasuries, ticker: TLT, we are able to observe that there are signs which indicate a high probability of equity market sell-offs.

Similarly, the VIX index show indications of market sell-off before it happens. Here, we use the CBOE VIX ETF, ticker: VXX.

Shown below is the intraday chart of the SPY (the S&P500 SPDRS ETF), correlated with TLT and VXX daily closing prices in line charts below. What is obvious in the time marking is that there is a break of a higher high on TLT and on VXX BEFORE the SPY started selling off. This is much clearer in candle comparison charts where the breakout of higher highs are registered, as opposed to the closing prices.

Below is the daily chart of TLT, and it is clear that the MACD is indicating a start of a rally, which is concomitant with a higher high breakout. Compare the current scenario with that of early August 2011. The situations look very similar.

Likewise, the VXX daily chart corroborate a similar indication as well.

All the above are suggesting that a significant market sell off is coming and that the last few days' activity is just the beginning. Notice too from the first chart that the was a failure of the 200MA on the ES. This is a major no-no tyope of ice-hole failure and one should be looking out for signs of major deterioration of the markets from the global economic perspective of politics.

The train has left the last station... next stop may be the bottom of the cliff.

Hang on to your pants!

The MadScientist
22 November 2011

Note: ALL material posted here is from my personal opinion, and my opinion may differ or change without notice. These do NOT constitute as solicitation, investment nor financial advice. By reading the materials presented here, Readers acknowledge the awareness that the materials are intended for educational purposes only. For investment(s) advice, related decisions and/or actions pertaining to investments, always consult your own qualified financial advisors, brokers, etc.