China GDP came in lower than expected but new lending much higher. Ryan Puplava makes the case for the Chinese economy and stocks to be bottoming here.

Source: PFS Group / Wolfe Trahan

If so, that should provide a push on commodities.

William Dudley of the NY Federal Reserve yesterday suggested they were ready to deploy QE3 if things deteriorated, which adds to the recent mixed messages but perhaps provided one reason for gold and the Euro to rally yesterday. The US dollar index has accordingly dropped to the bottom of the triangle nose.

Source: Stockcharts

Clearly, the triangle is running out of room. Spain CDSs remain critically high, though Italian debt sales yesterday went better than expected. US earnings are only just getting going, but Google last night beat expectations. US economic surprises made a leap up yesterday, but so did surprises for all the major economies. I remain of the expectation that the dollar will eventually break down, in a commodities finale, but in the shorter term I am not sure which way this will break. Sentiment still gives no clues either way.

AAII bullish sentiment for stocks has collapsed, following the recent correction in equities.

Source: Bespoke

This collapse perhaps echoes the swift collapse in the Nymo and move to capitulative breadth in that we might expect upside in stocks from here rather than downside. Capitulative Breadth dropped from 7 to 2 following yesterday’s rally, so back to neutral. We often see a positive divergence in Nymo to mark a low, which could mean a W bottom in stocks. There is a geomagnetic storm in progress today. Combined, we could see a pullback in equities shortly, to make the second half of the W bottom, and this is perhaps echoed in having reached the backtest of the broken uptrend:

Source: Andrew Nyquist 

Positive pressure should resume into the end of next week and the new moon, following the passing of the geomagnetic storm.


6 thoughts on “Update

  1. Hi John –

    I know you mentioned that things look oversold, however I’m seeing significant risk of a drop towards that 1290-ish support level. That would correspond to roughly 10% off the 1420 high, a retrace of all the gains this year to date, as well as a test of the Oct/Nov support.

    That level might also serve as a trigger point for further QE …

    As much as I’d like for the market to find support here (I’m holding a core long position with expectations for upside into 2013/14) and resume the upward trend, short term outlook seem to favor a further correction lower.


  2. Capitulation typically moves in 3 waves and we just finished the second, so there should be one more wave before a bottom.

    Essentially everyone at the Fed is mere noise other than Bernanke. Dudley and Yellen are the only other two worth any notice. Both are constantly and ridiculously dovish, but it is of some significance that both came out in the last two days with strong dovish remarks. That would not have happened without Ben’s explicit permission.

    The Fed message is this: Would you folks please let the market drop so we can QE. Just let it drop enough, we’ll QE, and then you can have a real big rally.

  3. I think like Marlowe, now the market starts a new wave 3, the last, for about a month.

    We could see 1440 for the top after of this, a little crash….maybe 1300-1270 for the summer.

    If you want QE, you have to feel the pain.

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