This page has been archived and commenting is disabled.

Citi: "Major Equity Markets Are Bending... But Will They Break"

Tyler Durden's picture




 

Across the spectrum of the US, Europe and Japan we have seen we see many stock markets that are “bending” towards pivotal supports and, Citi's FX Technicals group notes, A break below these supports, if seen, would suggest that we could see much more significant corrections lower across the board - "Any which way you look at it this market has a lot of potentially concerning developments but all the 'bricks' have not yet quite fallen into place here." However, as they add, VIX is showing such as move that "if seen" would almost certainly suggest a high to low move in the S&P of "double digit percentages."

Via Citi FX Technicals,

Looking across the spectrum of the US, Europe and Japan we have seen some bearish technical indicators develop in recent weeks

While these are certainly concerning, we need to see more evidence/breaks of more important levels before it suggests that we could see a more serious (Possibly double digit percentage) corrections across the board

S&P 500- How stretched is it on the weekly chart?

At the peak on 15 Jan 2014 the S&P was 12% above the 55 week moving average which itself was 20% above the 200 week moving average.

At the peak in 2007 the S&P was 8.5% above the 55 week moving average which itself was 14.5% above the 200 week moving average.

At the peak in 2000 the S&P was 14% above the 55 week moving average which itself was 29.5% above the 200 week moving average.

So the answer here is much more stretched than 2007 and a bit less stretched than 2000. In both those instances you would have expected (and in fact got) a correction down to the 200 week moving averages. In fact in both instances we ended going a lot further because of the knock on effect of another asset in the US. In 2000 it was the NASADAQ and we saw the NDX (Nasdaq100) drop over 80%. In 2007 it was the housing market and credit which induced a much deeper correction. In 1998 and 2011 the corrections were deep (Both 22%) but the “crisis” in both instances was predominately external (Russia default of 1998 and European crisis/Greek defaults in 2011)

Right now we are looking at the danger that the bigger catalyst here (like 1997-1998) might be “Fed tinkering with EM sinking”

The 55 week moving average is at 1,667 (10% off the highs) while the 200 week moving average at 1,385 is 25% off the highs and rising about 3 points per week.

S&P monthly chart could be important here in the coming months.

After a strong surge higher from 1994 to 1998 we saw a monthly close below the 12 month moving average in August 1998 (after closing above the 12 month moving average for 43 consecutive months) and we saw a 22% correction high to low. The price action then continued higher into 2000 for 24 consecutive monthly closes above before we eventually saw another monthly close below in October of that year and a high to low fall of 50%

After regaining the 12 month moving average in April 2003 it held above until December 2007(56 months). That culminated in a high to low fall of 58%

In December June 2010 (After only 11 months above on a closing basis) we saw a close below that culminated in a high to low move of 17%

Then after 11 monthly closes above we broke below in August 2011 with an eventual high to low move of 22%

We have now closed 25 consecutive months above this average which still stands quite a bit lower at 1,675 but rising about 23 points per month. If we were to see a close on a monthly basis below here, it would suggest that the “bend” could be heading for a break.

In addition a close this week/month below 1,768 would constitute a bearish monthly reversal off the high of the almost 5 year trend (Something we got in July 2007 before one last hurrah into a marginal new high in October)

“Any which way you look at it “this market has a lot of potentially concerning developments but all the “bricks” have not yet quite fallen into place here.

DJIA weekly chart: Also looks similar to 2000

Posted a bearish outside week last week (Something it just failed to do the week of 17 Jan 2000). The trend highs were posted the previous week in 2000 and never again seen in that cycle. So far we managed to get the bearish outside week 3 weeks after the trend highs were posted

A weekly close below the 55 week moving average at 15,184 would suggest the possibility of extended losses towards the 200 week moving average at 12,886 (22% below the trend highs)

In 2013 we had our 5th consecutive up year in the DJIA. In data going back to 1901 the only time we have had more the 5 consecutive up years was into the 2000 peak (9 consecutive up years from 1991)

Dow Jones Transportation index- Weekly chart

Posted an aggressive weekly reversal at the high of the trend channel from 2009. Good supports are met at

– 6,933-7,036 : Rising trend line and horizontal trend line
– 6,541: 55 week moving average
– 5,772 : Channel base support
– 5,378: 200 week moving average.

Dow Jones Transportation index- Monthly chart

A close this week below 7,036 (A stretch but not impossible) would give us a bearish outside month at the trend highs and suggest a move lower-possibly towards 5,500-5,600 again

VIX weekly chart: Setting up for a big test?

There have been 6 tests of the 200 week moving average on the VIX since 2011

Of these 6 we saw 5 failures to break it on a weekly close basis and one success in August 2011

That successful breach saw the VIX move from a low just over 14% to a peak of 48% (A similar peak to that posted in 2010). In 2011 that was accompanied by a 22% fall in the S&P and in 2010 by a 17% fall.

The 200 week moving average now stands at 19.37% with a potential double bottom neckline at 21.34%. A weekly close through this range would suggest an acceleration to the topside and target at least 30%+

Such a move , IF seen, would almost certainly suggest a high to low move in the S&P of “double digit percentages”

US bank index weekly chart: Weekly reversal at the trend peak

Suggests at least a test of converged trend lines and the 55 week moving average between 61 and 62.

Below here would suggest the danger of extended losses towards the 200 week moving average at 51.

E300 (Europe) Index: weekly reversal at the highs

Posted a clear bearish outside week yesterday at the high of 2011-2014 rally. This suggests the potential for further losses in the weeks ahead. Initial support is met at 1241 (trend line) and then 1228 (55 week moving average)

A weekly close below that latter level would suggest the danger of extended losses towards the converged trend line and 200 week moving average support around 1,106-1,108 (Around 18% off its peak)

CAC 40 (France) : Bearish weekly reversal and double top.

Again, this index posted a clear bearish weekly reversal at the trend high and in addition has the potential to form a double top.

The neckline stands at 4,051 and a close below would suggest at least 3,750 with interim support at the 55 week moving average (3,988)

Below here we see numerous converged trend line supports and the 200 week moving average in the 3,537 to 3,662 range

FTSE (UK) : Another bearish outside week at the high and possible double top

Completed a bearish outside week last week and has followed through to the downside this week.

Now testing good trend line and 55 week moving average support between 6,508 and 6,522. Below here further good support is met in the 5,990-6,105 range with the 200 week moving average at 5,891.

A weekly close 6,023 would complete a clear double top formation and suggest additional losses towards 5,200 or below.

Hdax index (Germany):Bearish weekly reversal at trend high

The HDAX Index is a total rate of return index of the 110 most highly capitalized stocks traded on the Frankfurt Stock Exchange. The HDAX has a base value of 500 as of December 31, 1987.

Initial support is met at 4,687 and below here converged 55 week moving average and trend line support comes in between 4,335 and 4,408

A weekly close below this range would suggest extended losses towards the 200 week moving average at 3,652 (28% off the trend high)

MIB index (Italy): Bearish outside week at the highs

Suggests a move lower to test the trend line and 55/200 week moving average supports in the 17,347 to 17,984 range

A weekly close below this range would suggest the danger of extended losses towards 14,855-14,900 again

Topix banks index (Japan) posts bearish outside week

Trend line support and the 55 week moving average support stands at 174.55-175.83 with further horizontal support met at 154.63.

Below here would suggest extended losses towards 132.

Topix index (Japan)

Failed to accelerate higher after the break of the May high of 1,290 in late December/early January and has fallen away sharply in recent weeks. The peak at 1,308 was pretty much the exact target of the double bottom completed in March last year.

A move to test the 55 week moving average at 1,147 looks to be a real possibility and a weekly close below would suggest a test of a potential double top neckline at 1,033.

A close below that support would target as low as sub 800 again with the 200 week moving average at 908

So across the spectrum of the US, Europe and Japan we see many stock markets that are “bending” towards pivotal supports. A break below these supports, if seen, would suggest that we could see much more significant corrections lower across the board.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 02/02/2014 - 19:16 | 4394338 Sudden Debt
Sudden Debt's picture

recovery = low goldprice
Armegeddon = high gold price

Guess what I'm rooting for :)

Sun, 02/02/2014 - 19:23 | 4394346 Gankfest
Gankfest's picture

I like to pee on everything I run into... HI! :D

Sun, 02/02/2014 - 19:25 | 4394351 FieldingMellish
FieldingMellish's picture

I have it the other way around.

 

Recovery = inflation = higher gold price

Armegeddon = rush to the dollar for "safety" = low gold price

 

The question is, will 2014 be a repeat of 2008 or something completely different... 

Sun, 02/02/2014 - 19:54 | 4394388 disabledvet
disabledvet's picture

I agree with this...and no (see below) I don't think Citi is all that worried here.

My personal view is that the USA is in effect adding about 150 States to its "Union" right now...but divining the actual "meaning" of that is not easy.

One realization is a massive surplus of "material" and "widgets" that need to find a home.

In order for that home to be the USA you have to buy the debt first...and the USA is producing a lot less of that of late. (that number can go to zero actually)

Needless to say good luck selling a product in the USA other than propane right now.

I have no idea what Citi is going to be financing here...but I do agree they have that ability on a truly massive scale right now.

My guess would be they'll "start small" and then go from there.
It's not like the line of debtors isn't out the door here.
"Just make sure it's priced in dollars."
If I were to start anywhere it would be Michigan.
Ukraine looks like a risky but very good number two as well...once the New Government is in place of course.
The existing regime looks all too familiar.

Sun, 02/02/2014 - 20:56 | 4394473 hairball48
hairball48's picture

Something different...both inflation and deflation depending on what sort of asset one is talking about.

Generally, inflation in prices of "real stuff" like productive real estate, specific commodities, real money(gold and silver), etc.

Deflation in "bullshit stuff" like paper assets.

Sun, 02/02/2014 - 19:20 | 4394344 Winston Churchill
Winston Churchill's picture

Lots of CYA articles appearing.

Looks like a bloodbath is a real possibility this coming month.

Sun, 02/02/2014 - 20:18 | 4394433 The Shootist
The Shootist's picture

Shitti Bank not too sure? There clientale advice is about as good as their 10 year stock chart.

Sun, 02/02/2014 - 19:28 | 4394352 BringOnTheAsteroid
BringOnTheAsteroid's picture

I'll say this. All those Hindenburg Omens were not so much omens as a crock of shit.

Sun, 02/02/2014 - 19:32 | 4394360 Aknownymouse
Aknownymouse's picture

Will not be allowed by Mr Yellen

Sun, 02/02/2014 - 19:52 | 4394384 Winston Churchill
Winston Churchill's picture

He is not God , although he may think otherwise.

He stands up to piss like any other man.

Sun, 02/02/2014 - 21:14 | 4394510 WillyGroper
WillyGroper's picture

I heard he was a squat to pee.

Sun, 02/02/2014 - 21:24 | 4394528 Winston Churchill
Winston Churchill's picture

Did I really need a \s on that ?

Sun, 02/02/2014 - 21:29 | 4394539 WillyGroper
WillyGroper's picture

Did I?

Sun, 02/02/2014 - 19:33 | 4394362 The Heart
The Heart's picture
Citi: "Major Equity Markets Are Bending... But Will They Break"

Well now, might that depend on who is shorting the bank run?

http://www.zerohedge.com/news/2014-01-31/why-harvard-economist-pulling-a...

Or would that be, hedging the bank run?

Ah, who cares?

Hold on...what's on TV?

 

Sun, 02/02/2014 - 19:37 | 4394364 Iam Yue2
Iam Yue2's picture

Ok, great. But playing field has already changed since the ink dried:

"THAILAND has held nationwide elections without bloodshed, but the country's bitter political crisis is far from over.

Although balloting was largely peaceful, protesters forced thousands of polling booths to close in Bangkok and the south, disenfranchising millions of registered voters. Not all Parliament seats will be filled as a result, meaning the nation could stay mired in political limbo for months with the winning party unable to form a new government."

(The Australian).

Sun, 02/02/2014 - 19:46 | 4394374 Oldwood
Oldwood's picture

Speaking as a stock market illiterate, when prices continue upward, where does this money come from? They are still selling evermore treasuries as well. Is it all "printed" money or is it sucking money that might otherwise be invested in real business ventures or even R&D? We know that a lot has come from stock buy backs, using cash and borrowed (or bond) money. It just seems as thought the prices reflect inflation to some degree, not due to economic expansion but direct monetization from the FED. But also,if JPM and Goldman are using cheap treasury money to ramp this up, that money still has to be paid back at some point, no? It seems it HAS to be a bubble but I can't get my head around exactly what pops it. The thing is...anything that is this complicated has to be unstable and every day that goes by without it crashing would seem to increase they odds it will happen sooner than later.

Mon, 02/03/2014 - 15:09 | 4396575 SDShack
SDShack's picture

It is simply monetizing the debt. At the height of the recession, we had $1.4T deficits, and we had $85B/mo in QE of some type, plus a huge rollover of high interest debt lower interest debt as rates fell. Add a tax increase and now we have $700B deficits so QE is reduced to $65B/mo. The bottom line is we are printing about 20% more dollars to spend then we are receiving in revenue. So long as the value of the dollar doesn't drop by 20%, or inflation rise by 20%, the net effect is stimulative. The math doesn't work completely, but this is the general idea that the Fed is following.

The problem is this stimulus is going nowhere but to the Free Shit Army on the low end, and the investment banks (and China) on the high end, who are the primary bidders of US treasuries. The other problem is if the dollar drops too much, or inflation rises too much, comodies explode and that tanks the economy and the masses revolt. That is exactly what happened to cause the Arab Spring, and you see similar flare up occur all across the globe from time to time.

The big issue is a soverign default, as that brings down the whole house of cards with derivatives. The EU showed what a contagion that was. That is why I think the real end game for the Fed is to crush PM's, and own more then 51% of the treasury market, to neutralize bond vigilantes and prevent a soverign default. Then it can be king dollar forever to support the continuation of the debt monitization ponzi to enrich the elites, expand the Free Shit Army, and fleece the middle class of whatever assets they have left.

The only thing that can disrupt this plan is some threat from outside the Western system. A new currency based not on fiat and debt, but real assets. That's why the West Oligarchy has to smack down any upstarts around the world that might try it. This includes internal discent here. I don't think anyone really knows how this is going to play out, including TPTB here. But you can bet they have plans for the most likely contingencies. The bottom line is they will sacrifise anyone and anything to protect TPTB. Everyone else is expendable so plan accordingly.

Sun, 02/02/2014 - 20:22 | 4394436 surf0766
surf0766's picture

What is the support level with NO FEd? 6000 ?

Sun, 02/02/2014 - 20:57 | 4394475 Winston Churchill
Winston Churchill's picture

5300 djia

666 s+p

Sun, 02/02/2014 - 20:57 | 4394477 orangegeek
orangegeek's picture

US indexes have not closed below December lows seen on this Dow daily

 

http://bullandbearmash.com/chart/dow-jones-daily-continues-consolidate-f...

 

We are still in the higher highs and higher lows process until then - which started in late 2012.

Sun, 02/02/2014 - 21:11 | 4394496 Soul Glow
Soul Glow's picture

Of course they will break.  The monetary action taken by the Fed and all Central Banks around the world created an unsatiable easy money policy that has done nothing to fix the economy except line the rich's pockets through the equity market.  The equity market is once again overbought and will continue to correct.

Like I was writing a month ago, world stock markets will have corrected 20% to 30% by the Spring equinox.  Gold did not hit $1300 by February like I thought it would, but it held strong in the face of a stock market pullback.  Look for the trend to continue in all asset classes over the coming months.

Sun, 02/02/2014 - 22:21 | 4394653 Caveman93
Caveman93's picture

Mean or Average(can't remember which) historical home price or value in the US since like the 1800's has always been $100,000.00. AND it shall be once again...soon!

Mon, 02/03/2014 - 03:40 | 4395103 Clowns on Acid
Clowns on Acid's picture

The break in the markets will come when the Fed wants to break the markets. Then of course as the "crisis" hits... well.. Fed will have to untapir the tapir... cause it worked last time.

Mon, 02/03/2014 - 06:54 | 4395228 PowerPlayer
PowerPlayer's picture

It probably all depends on the upcoming non-farm payroll report.  If the report is strong the market will rally and break through resistance.  However, if the report is weak for a second month in a row we will defnitely take out support below as people realize the Fed is pulling away at a time the economy is weakening.

 

The million dollar question is was the the weak December non-farm payrolls report a one off event or the start of a trend.  If the start of a trend then you probably want to be short this market, but if it was a one off event with economic recovery continuing then the market won't fall that much.  

 

Do NOT follow this link or you will be banned from the site!