Friday 1 August 2014

US equities increasingly vulnerable

With July ending on a pretty bearish note, US equity indexes are looking somewhat vulnerable. The R2K and Dow remain particularly weak, whilst equity bears can't be confident of a mid term top until sp' breaks into the mid/low 1800s.



This past Thursday saw the most bearish price action since early February. Of course, VIX has so far only hit the 17s, which is not exactly a particularly high level on any historical basis.

Even the low 20s look a tough challenge for August, but... if the sp'500 slips under 1900, then VIX 20s look viable.

MARCON 6 this autumn?

First, I should note, under the rules, the Dow and R2K are currently already at MARCON 6, with their monthly MACD cycles already negative. Indeed, the R2K turned negative in late July... whilst the Dow has turned negative as of August 1'st.

The sp'500 is probably at least another month or two from changing to 6.

I do not anticipate MARCON 5 for any of the indexes this year.. even if we see a major multi-month fall of 15/20%. Price momentum from the Oct'2011 low has been so very strong, that it will take an absolutely huge fall to hit the criteria for MARCON 5.

Market anticipating the end of QE3

sp'monthly8, QE phases

Two further tapers are due - Sept'18 ($10bn) and Oct'30 ($15bn), with QE3 set to fully conclude as of Oct'31st.

As is clear from chart monthly'8, in both 2010 and 2011 - within 1-3 months of QE cessation, the market saw a very significant down wave.

In the current situation of course, things are somewhat different, as QE has been gently tapered. Regardless, as the QE fuel is reduced, the underlying upward pressure to the equity market is lessened.

As of Friday Aug'1st... holding at MARCON 7