Have you ever seen a fight, where round after round a boxer seems to be landing blow after blow with no effect? But late in the fight, the boxer lands a simple body blow, and his opponent collapses. What happened? The boxer was beaten from the inside out.
The surface of things is not always as it appears. You must look inside to see the damage that is being done.
The large wedge that has formed on SPX off the March 2009 low is unmistakable. MACD trendlines have been converging, showing multiple negative divergences, including another fresh divergence with this week's high. If we are indeed to see a late-round knockout collapse in SPX, the lower rising trendline will need to break first.
But before we get ahead of ourselves, let's go a few rounds, and see what is happening within markets.
Copper is showing the first crack in the SPX facade. Body blow number 1! Its rising trendline off the Oct '11 low was broken last week. Daily MACD is also showing a negative divergence, which should portend more weakness ahead for copper. To trigger the large head & shoulders pattern in JJC, we'll need to break through the rising trendline coming through the June '10 & Oct '11 lows.
GDX is body blow number 2, and it's a big one. The comparisons to 2008 in GDX are striking. If the analog continues, we would be looking at early August 2008 currently. The broken rising MACD trendline, combined with the breakdown in the massive topping pattern, should portend more weakness in the months ahead.
The Euro is body blow number 3! Similar to JJC & GDX, FXE also topped in 2011, and has not confirmed the advances to new highs in SPX during 2012-2013. Also, as with GDX, FXE is showing some similarities to it's 2008 action. There is a noticeable negative MACD divergence, combined with the rising MACD and price trendlines breaking the last week of February.
EEM, the emerging markets ETF, will be body blow number 4. I have covered Brazil & ITUB in the past, and they both continue to offer interesting divergences from SPX, but today the EEM trendline shown above has my attention. A large move in EEM appears to be at hand, with the price trendlines converging, the MACD negative divergence, and the rising MACD trendline threatening to be broken.
