A sea of red again on Wall Street overnight. I said in my notes on Wednesday that “I think the next down leg is either here or only days away”. Unfortunately that does seem to be the case. As always, I can not give any guarantees but my God it looks awful.
At the very minimum I think we have to retrace half the recent rise at around 2550 on the SPX. That is the best case. However, I believe we have started the next leg down of the bear market and I think it is going to ultimately go much lower. But one step at a time because it is possible to make the argument that if we retrace half the rise, we might have another go at last year’s tops.
The only plus I can find is the fact that everything gapped down last night and I’m not sure what the market will do about those gaps – go back and fill them or just leave it to history as a example of a “breakaway gap”.
I mentioned a few days ago that I was unhappy that natural gas prices were still weak, and it made me concerned about crude being able to form a base around $50. It is still holding above $50 but I am far from happy with the overnight performance in crude. Copper held in quite well. Gold rallied and now has a huge test – it has rallied back up under the pattern formed recently. I need it to continue through this bit of overhead resistance otherwise it is also going lower short term. Analysis of gold has been made a bit more difficult this week because of the holiday in Asia but I am not changing my long term view.
I mentioned yesterday that the steaming coal price was hanging by a thread – that thread got even finer last night. The distant months are leading the way. This is serious.
So not much good news for our market. At the beginning of the year in my analysis of the XJO I commented that trading “gives an initial target of 5900 – perhaps even 6100 but let’s worry about the second possibility later.” It even reached that second target yesterday. Unfortunately, I think we will follow Wall Street lower. Likely to get to review the situation around 5850 on the XJO but as with the S&P that is likely to be only a hesitation point.
Been a lot of excitement about the banks but I think it should be kept in mind that the sector index is now only back up where it was last October. It is possible that if they come off again it could be part of a base pattern here, but it is going to be up to the banks to prove that to me. I am feeling rather disappointed in the recent report and don’t see much change going forward.
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