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Graham Summers’ Weekly Market Forecast (Euro hype over? Edition)
Last week’s
explosive rally was due to three factors:
1) Stocks
came perilously close to breaking down so the PPT stepped in
2) A
bullish falling wedge pattern in stocks
3) Euro
options expiration/ ECB intervention
Regarding
#1, stocks came right on the verge of breaking below their 50-DMA. Given the
technical nature of the stock market rally (the market hasn’t traded based on
fundamentals in months) this would have heralded a major decline.
With the Fed
and the US Government’s claims of a recovery hinging largely on the fact stocks
are up, the powers that be couldn’t possibly allow this, so what do we get? A
ramp job that takes stocks up nearly 4% in three days.
From a
technical picture, this move was predicted by the bullish falling wedge pattern
that formed over the preceding three weeks (see the chart below). Of course the
only reason this pattern formed in the first place was because “someone”
stepped in and propped stocks up every time they came close to breaking below
1175.
Regardless,
the ramp job that occurred Wednesday through Friday satisfied this pattern. As
I write, the S&P 500 has failed to best its early November intraday high
(1227). A move above that level could portend a greater breakout, however, this
will all hinge on the Euro.
Last week
was options expiration week for the Euro. Already oversold, the currency was
due for a bounce. Options traders took advantage of this to gun the Euro higher
when rumors swirled that the European Central Bank would potentially issue a
larger bailout.
Nevermind
that the rumors proved false or that the European Union continues to collapse,
in today’s market it’s trade first and think later. With that in mind, I want
to note that the Euro is now coming up on major resistance.
If the Euro
rises to break into the gap then we’re likely to see a move to 136, which would
correlate to the S&P 500 breaking out to new highs. However, given how
fragile things are in the Euro zone, this move could also be finished and we’re
heading back down to new lows in due course.
Indeed, the
big picture here hasn’t changed. The Euro is destined to make new lows having
already been rejected at its multi-year trend-line. Given the high correlation
between the Euro and stocks in the last few months, this predicts a full-scale
collapse in the stock market at some point in the coming months.
On that
note, Gold hasn’t bought into this latest Euro rally in the slightest, breaking
out to new all-time highs in both Dollars and Euros, indicating that the flight
from paper money continues in a big way. This is confirmed by Silver, which has
also recently broken out in both Dollars and Euros.
To conclude,
the markets are set to consolidate, if not correct this week. Euro options
expiration is over. And the ramp job from last week needs to cool. Whether
we’ll get a sideways trading range or a move to the downside all hinges on the
Euro’s action, so keep your eyes there for signs of which way we’re headed.
Good
Trading!
Graham
Summers
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yada yada yada... stock market collapse.... lol.... heard it all before.
Wasn't Mr Summers predicting SP 875 by end of year a few weeks ago?
I dont understand why some bearish commentators look at gold and equity moves differently, as if they see something very insightful:
i.e. When gold moves higher, I told you so, things are going bad
When Stocks go higher , things are very bad, but markets are manipulated, powers that be dont let the SPY fall below, 1000, 1050, 1130, 1175 etc:
Why cant you look at this way it is the same thing ! They are both denominated in USD, USD is being devalued, that is all that is going on. The same laws of supply and demand of money, USD, and EUR makes the price of both stocks and PM move, in general, apart from short squezes, real commodity demand, short term volatility.
Loot at your charts: When QE1 was announced at March 2009, SPX was around 800, now it its around 1200, 50% gain.
At same time Gold was around 900s now its around 1400s, about 50% gain.
Silver you ask: That is the Emerging Market of PMs, It was 13 now 29. Bovespa, Sensex, Russia,Indonesia almost have the same % change. Look at it yourselves..
I find it hillarious, when people here congragulate themselves to be out of the equity market, and buy these assets, just by looking at short time periods when SPX fell from 1200 to 1000, but dont look at the big picture. And don't consider how much they enrich the coin dealers with the high amounts of commission they pay, and will pay. Of course I have nothing to say for the collecting angle of this..
As robottrader mentioned, major indexes are on the verge of breaking their yearly highs. Do you really think the PPT are going to let this opportunity get away, after all the money they've already "invested" in the recovery?
Robo is a day trader with an obvious bullish bias right now. Follow Robo at your own peril.
He's self employed. Ringing the cash register a little more often than the ZH bears, lol.
Good for him. I am retired and living well on tax free muni bond interest. I am not about to throw money into this artificially pumped market. No reason to take a risk.
Good luck.
My Forecast:
Seas calm, slight breeze.
Smooth sailing ahead.
What could go wrong.
Hey, wait a minute.
This boat is taking on water.
Invest wisely.