One thing is for sure. Someone is going to be very disappointed this week.
Whether it's the bulls or bears remains to be seen. One thing is indisputable: the fear (or excitement, if you prefer) in May about falling stock prices has abated, as the VIX plainly illustrates. We have returned to pre-freakout levels, which peaked late in May at over twice the levels we're seeing currently.
Looking at the index graphs during the sunrise of this beautiful Tahoe morning, I see they all look largely the same – – that is, they have retraced (or nearly retraced) to levels similar to those of January. People are beating the head-and-shoulders thing to death, but I don't blame them. Some of the index graphs look like textbook H&S patterns (and this one is much, much bigger than the famed failed one of last summer), although the stronger indexes, like the NASDAQ Composite below, look more prone to a deformed right shoulder (and, to my mind, an invalidated pattern) than others.
Some of the charts are more compelling. The MidCap, for example, is at a very interesting price level both from a horizontal line measurement as well as its Fibonacci arc. I really try to avoid declaring when a market is at a "pivotal" point, but this truly seems like one of those times.
The same can be said of the Russell. Look at the two broken trendlines below. The first one, which is more sharply ascending, was broken in January, and its former role of support changed neatly into resistance. The flash crash broke the second trendline, and now we are positioned for what could be a very dramatic drop. If early next week gives the market enough strength to violate the horizontal lines we see all over the place, I think the aforementioned drop is going to be delayed several weeks.
The energy market, coupled with the Euro, is what's driving all the price action. I find the $OIX (oil and gas index) chart to be quite interesting, because it has flipped back underneath its long-term 50% Fibonacci retracement. It was below this level until September 2009, and it remained above it until May 2010. It seems to me we are clearly back into the lower range now.
Finally, the OIH (energy) chart, which is a very clean topping pattern that peaked on precisely the day of the Deep Horizon explosion. We see yet again the past couple of weeks have provided the bulls with a heartening retracement. I believe there is a very real chance that this retracement is exhausted, since so many indexes have returned to key breakdown levels.
That's it for me today. I'm going to be doing a ProphetCharts speech in Sacramento today, and I'm going to spend the rest of the day with my family. Thanks for stopping by!
