The Badgers Are Getting Angry

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I remember a trader describing some of the days with really wild swings in the 2011 pullback as angry badgers days, and that has stuck with me since as an oddly appropriate way to describe wild days with big declines and strong rallies as the markets head lower in a strong downtrend. After Friday, and looking at indices around the world, there is every reason to think that we are in another strong downtrend here, and if that’s right then all longs are now very dangerous and all rallies should be shorted until SPX reaches the 1800 target area where it may find support.

On the daily chart SPX put in a fourth day of the second lower band ride from the highs, and put the low in at the test of the 200 DMA, and slightly above main double-top support at 1904. On a sustained break below 1904 the double-top target would be in the 1789 area and I’m not seeing much reason to think that target wouldn’t be made. SPX daily chart:

141013 SPX Daily 200 DMA Tested

To put the current move in perspective the 1789 target is in the same area as rising megaphone support from the October 2011 low. That is the obvious next target within this pattern and the first really strong support after the double top and 200 DMA support in the 1904/5 SPX area. SPX weekly chart:

141013 SPX Weekly Patterns from 2009 Low

Looking around world indices Nikkei took the first serious step towards a likely steep decline last week when it broke the rising channel from the 2011 low. On a break below the 13880 area the target would be a retest of broken resistance in the 11400 area, and a 61.8% retrace of the last move up. Nikkei weekly chart:

141012 Nikkei Weekly Rising Channel and Double Top

The European charts are more starkly bearish. DAX has broken down from a very nice H&S I’ve been tracking for the last few months as it has formed. Targets are on the chart. DAX weekly chart:

141012 DAX Weekly HS Breaking Down

FTSE has broken the rising wedge from the 2009 low and the smaller of two double-tops. This first one targets the 6100 area. FTSE daily chart:

141012 FTSE Daily Rising Wedge Broken and DT Patterns

We are seeing an across the board correction in global equities here, and that’s a healthy thing to see after a very powerful move up since the end of 2012. The tests on Friday of the weekly lower band at 1907 and the SPX 200 DMA at 1905 save 2014 from being only the second full calendar year in history where there has been no test of either for a second consecutive full calendar year. The last occasion was in 1928, so that is a dubious distinction much better avoided. SPX needs to break below 1904 to confirm the double top target at 1789 and I’m expecting to see that break today.