Submitted by Chris Capre of 2ndskiesforex
The Inception-Style Dream is Collapsing
Following the lovely goose egg of a jobs report last week, markets started the week with an Asian Invasion rout led by the Hang Sang down 3%, and the Kospi shedding 4.4%. The second act of this sonata was Europe getting hammered led by a German Blitzkrieg 1-2 punch with the DAX losing 5.28% but more uniquely, the German 10-yr setting a new record below 2%. With all these trick-or-treats haunting the markets one has to ask, ‘Is the Ticking Time Bomb Going Off and the Inception-Style Dream Collapsing?’
We think so and we will begin by looking to a place that would seem most odd…the institutional players.
Using the S&P Consolidated data, the Institutional/Asset Mgrs. are long over 409k (net positions). When was the last time these blokes were this long? Rewind back 3 years and 4 months ago to May 2008. In May that year, the S&P’s high was 1440. What did the market do after that? Collapse to 667. We are suspecting a repeat here with a Thelma and Louise cliff-dive gap on Tuesday in the S&P weekly charts and likely in the DJIA. Should the latter one experience a down gap, if history has anything to say about this, a gap will bring some pain with it for over the last 80yrs, the DJIA has gapped 12 times with only one weekly gap being down. When was that? June 9th 1930 and the index tanked 21% in 2 weeks. Could this be the unlucky 13th gap?
Likely so with Europe imploding and growing concerns about a hard landing for China, we see nothing to stop this rout.
One last note…
On Aug. 21st, we posted using our weekly Ichimoku Kumo Break Analysis stating the S&P in the last 8 years has only broken the weekly Kumo 2x, the first time being in 2008 which led to a rougly 800pt drop in the index, and the last time was on the 3rd week in August. We wrote about the markets possibly doing a small retracement to the 1220 level, and the markets didn’t disappoint…only going 10pts higher, then slamming down over 80pts while failing to close inside the weekly Kumo. The combination of this rejection at 1230 (also 50% fib of the July 22nd 1350 high to Aug. 12th weekly low at 1107) lining up with a diving Tenkan-Sen (momentum-line) and a failure to close inside the Kumo suggests the original break was legitimate and the markets should easily touch down on the yearly lows. Any break of these lows and we suspect this will shatter any remaining thoughts from the butane-inhaling bulls thinking the last rally was the real slim-shady.