Home > Uncategorized > 2012/10/24: Weekly Perspective and Technicals available into critical market phase

2012/10/24: Weekly Perspective and Technicals available into critical market phase

© 2012 ROHR International, Inc. All International rights reserved.

Very short and sweet today, because all of the perspective is still much the same as yesterday’s post on the idea that it is Probably NOT Equities Big Bust …Just Yet. Even though the equities gapped down Tuesday below important supports at the bottom of a six-week trading range, the more important trend decision areas remain below the market. In the first instance there is the old early September gap in the 1,400 area on the December S&P 500 future. And that includes a Tolerance level even somewhat lower than that.

Yet, the most important evolution in the background that has driven the market psychology is the weakness of corporate topline revenues. That psychological discussion on that is available in our Weekly Report & Event Summary Perspective (link in the right-hand sidebar), with Technicals updated through Tuesday’s US Close as well.

That reinforces all of the warnings from the bears (present company included) that the weaker global economy would not allow companies to endlessly ‘manufacture’ attractive profits from sheer cost-cutting alone. At some point the piper would need to be paid with the sort of sustained lower earnings expectations that had been anticipated for the third quarter; and now that moment seem to have arrived…

 

Yet, even that weak technical activity and the prospects of the weakening global economy (reinforced by the projections of governments and the NGO’s) weighing further on corporate earnings is not enough to convince us to get more bearish at the bottom of the equities selloff at present. It all has to do with the fact that until the lead contract S&P 500 future falls below that support Tolerance just below the 1,400 area, it is not definitively back in the lower range as yet.

There are also the remaining reports and official pronouncements this week that may include some surprises for bears. That includes both UK and US Gross Domestic Product figures. And even if that news does remain weak, the equities have discounted quite a bit of the negatives already, and just might rally if lower critical support is not broken.

All in all, it would seem that circumspection is required until the equities either rally to resistance, or break that key lower support for a swing to much lower levels. Yet, that is always one of the issues when the market has already come down a long way: can the bears get the market to ‘break from a break’ below the significant supportthat would indicate the market would need to be ready to immediately extend the selloff in a major way?

General Market Observations

And in this case that would mean the December S&P 500 future that has come straight down from a test of 1,460 last Thursday would need to be ready to break another $40-$70 below the 1.389-87 support Tolerance. In other words, extend the break that far on top of the $70+ it had already broken. That would mean down into 1,350-20 support if it is going to give up the 1.400 area support Tolerance at 1,389-87. If not, then at the very least a near-term recovery to test the 1,425-30 key congestion and signal levels is more likely; even if it must be allowed the December S&P 500 future would still be vulnerable to breaking the lower support if it fails at that higher resistance.

Extended Trend Implications

Also not consistent with equities turning down in a major way is lack of confirmation from other asset classes. Note relative govvies weaknessand lack of US dollar strength. While the December German Bund future had been trading up near 142.00 this month during December S&P 500 future dips to the 1,425 area, it is barely backed to the mid-140.00 area after its vigorous test of 140.00-139.60 support. The December Gilt future has similarly only been back up to the mid-119.00 gap after recent tests of the 121.00 area when equities were down to their now violated support previous. And the December T-note future has also not recovered much from its test of 132-00 after trading up into the mid 133-00 area until last week.

Along with the lack of US Dollar Index strength back above .8000, and the resilience of the euro into no worse than its key EUR/USD 1.3000-1.2950 area, it all seems to indicate the need to remain circumspect pending further equities activity. Also note the resilience of commodity currency Australian dollar back into the AUD/USD 1.0250 area, and the fact that the sharp downward correction in the December Gold future also only leaves it headed back toward the far more critical UP Break, congestion and weekly MA 41 in the 1,675-65 area.

Conclusion

Other than the sharp selloff in May, the bears have seen how many times the equities are willing to break, yet not ‘break from a break’ through the next lower critical trend support that would put them into a heavier downward spiral. Other than May, the story of this year has been an equities market that was able to hold violated resistance (as support) on the next downside correction. In fact, that was the case when the lead contract S&P 500 future first pushed back above 1,400 in early August to a high of 1,425, and could not get back below 1,389 over the following month.

Hmmm, feels familiar in a mirror image sort of way (i.e. market coming down into the area instead of up into it.) So you’ll pardon us if we are allowing sense of déjà vu to inform our perspective that it is not quite time yet to get bearish at the bottom of the break. Maybe soon; maybe on a rally; but only if there is a violation of that support Tolerance if you want to get bearish on a near-term new low.

Thanks for your interest.

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