Mmmmm.... That summer 2008 feeling!
From Nic Lenoir of ICAP
Today I just want to focus on one thing and one thing only, making sure I pin the top on the S&P 500 rally started in late August as I strongly believe the next wave will take us sub 1,000 in the S&P future.
First of all our VIX reversal warning is still in effect, we still recommend to be long VIX November and December calls. I personally favor 35 and 37.5 strikes. At a cost of 1 for the November 37.5s, should we indeed go dip below 1,000 you stand to multiply your investment somewhere between 5 and 10 times.
That said, I turn to the fractal structure of the move in S&P and Eurostoxx. Both are completing an A-B-C flat correction from the lows in early July. Standard targets both indicate that we could possibly go a touch higher with a 1,160 being the C=A in S&P and 2,873 in Eurostoxx. However the price action in both is bearish here. In S&P as long as we remain below 1,138 I expect to go fill the gap at 1,105 before testing the key resistance which will be around 1,075. We have a H&S short term with neckline at 1,117 and we broke and retested as resistance the support of the latest move from 1,082 to 1,142. Similarly as long as we remain below 2,785/2,790 I expect the Eurostoxx to go test 2,577. If that breaks the bear minimum we will go challenge is 2,326, and I personally think we go sub 2,000.
An interesting observation here is to note the similarity between 2008 and now. People tout decoupling as a reason why the dollar is going to keep getting weaker and China is going to drag us from our woes... Check! Commodities like Copper etc... are going to the moon even though they might be stockpiled in large excess already in Chinese warehouses... Check! We have elections coming up so we are going to rally into the elections... Check! Most asset managers are struggling so they need to make their year and go calls to the walls into Q4... Check! And no better indicator of these similarities than the attached chart showing copper and S&P superposed: the divergence is clearly deja-vu!
Good luck trading