Zak Mir – Can’t beat ’em, join em! A Top in For The S&P & T Bonds?

Well, as our esteemed former editor posted earlier today here (http://www.spreadbetmagazine.com/blog/we-begin-the-building-of-our-short-position.html) in which he suggest that it might be time to go short, I thought I’d thrown my own hat into the ring on this (and probably put the kiss of death on us!) and similarly call “time”.

So far attempting to actually call time on what has effectively been the “post Fiscal Cliff rally” for equity indices, especially those in the U.S, has not been a happy task. This is despite, and perhaps even because of, the sharp breakdown in May, where even the S&P dipped quite painfully. An “island bottom reversal” was promptly put in that quickly got this market back on its feet and then on to probe out new records this month. Any celebrations (and indeed any profit made) by the bears who called the top in May would most likely have been erased and even reversed in pretty sharp fashion.

What can now be seen currently on the daily chart of the S&P is a dance either side of the former May 1,687 peak. The assumption to be made now, even as this market appears to be cracking again, is that we should wait for a clear technical sell signal. This could be in the wake of the ultra strong New Homes Sales in the U.S. – at a five year high, and the 4 month peak on July flash PMI, and would ideally be a sharp end of day close back below 1,687, to render the price action on the daily chart over the past three months as merely a double top bull trap. Nevertheless, it could be that cautious bears would like to see much more of a dark cloud over this market – a weekly close below the last 1,654 June ceiling would perhaps allow us to consider that this is a market which will go down, and stay down.

A market which is certainly not going down or staying down currently, courtesy of the post Christmas QE policy of Prime Minister Abe is the Nikkei. What can be seen here on the daily chart is the way that there has been a December rising trend channel in force, with the floor of the channel running at 13,100. However, of more immediate interest is the way that having gapped up through the grey 20 day moving average now running at 14,240 to start July, we have seen this market accelerate to the upside.  The likelihood now, is that at least while there is no end of day close back below the 20 day line, then the upside could still be towards the 8 months price channel top as high as 17,000. Perhaps on a 1-2 month timeframe.

Just as import as leading indices at the moment in term of financial markets is that of Bonds, especially the T Bond. Here we have a classic example of not only an extended 2 year head & shoulders top on the daily chart, but also the way that over the past month, new resistance has come in at the former late 2011 / early 2012 support towards 135. The chances are that over the rest of this summer we shall see a further breakdown with only well above the June gap at 138 delaying a test of 2011 summer support under 125. This market of course heading down to 125 would provide the added reminder that interest rates are without a doubt rising, and likely to continue to do so, despite what the Fed may be trying to tell.