Equities Topping Patterns - Everywhere

My post yesterday highlighted the risk of a short-term bounce, everything was setting up for a 'key-day reversal'. Well the bounce as it happened was very very short-term, the indices made it to the neckline of the Head & Shoulders pattern which broke last week before falling away. Though the S+P futures, did manage to complete a weak 'key-day reversal', this was not confirmed on the S+P500 index itself. Looking ahead some of the conditions still exist for this bounce to re-occur, however I think the odds have become remote for now. Looking at the bigger picture, though recent days' price action has show indecision, refering back to some of my earlier posts, I feel we may head lower soon, and possibly much lower.

Beyond that, I have decided to see how the bigger picture looks across a wide variety of markets. One of the maim tenet's of Charles Dow's original 'Dow Theory' was that of confirmation. Dow believed that a directional move or trend in the Dow Industrials Index could not occur unless the Railway's average (The Dow Transports Index) was moving in the same direction. If they diverged, then this called in to question the sustainability of the trending move. - The world has moved on since then, there are far more markets, covering specific sectors, or different size of market capitalisation. To that end I have looked as charts across a broad spectrum of indices, these can be seen below. All charts have a similar topping formation and each one has recently broken to the downside. To me this is strong confirming evidence, which adds weight to the major topping pattern, the Head & Shoulders, which should portend significant lower levels in the weeks and months ahead.
Beyond the US markets, it is also worth looking at global markets. The following charts show a selection of major G7 markets. What is clear here is once again we have similar topping patterns, though the German DAX offered a variant of the Head & Shoulders and has not yet made a new low for the recent phase (nor have a number of other markets within the EURO bloc).

The next set of charts move beyond the US and G7 countries and look at a variety of markets symbolic of Asia, South America and Commodity countries. Once again the major topping pattern is evident in all three charts. The Hong Kong markets has produced another variant of the Head & Shoulders pattern, this is probably because of the strong Chinese influence, - Chinese stocks indices seem to march to a very different beat. - As was the case with the German market, these have yet to make new lows for the recent move, however they all appear to have a strong downward bias.

S&P Correction

This morning the S&P futures have posted a quite dramatic turnaround from their overnight lows. Currently they stand at 1026 having been as low as 1003 overnight. On the daily chart this is potentially signalling a bigger bounce. If we can close around here or higher, then the futures will have completed a western 'Key Day Reversal'. This would also create a potential short-term double bottom with, the first part of which is a Doji Candlestick. Additionally this all occurs in the wake of Bullish momentum divergence. I do not think this is likely to change the bigger picture bearishness, however the futures have sold dramatically lower in the past 2 weeks by almost 130 points almost without a break, and a pause/correction is probably overdue.

Looking at the bigger picture, a correction would fit perfectly within the overall bearish outlook. I have posted two sets of charts below showing the larger bearish potential. The first is a set of comparison charts. The upper chart is the Weekly S&P Continuation Futures 2001 - 2008, the lower chart is the Daily S&P Continuation Futures Sep 2008 - July 2010. If u click to enlarge these charts, you should be able to see a very strong similarity between the 2 charts. (Note: this is different to the Fractal charts I posted in recent weeks). The current phase we are in, i.e. divergence at a new correction low, keeps the strong synchronisation of this comparison intact. If this comparison continues to unfold in a similar manor, this suggests the risk of a pullback towards 1060/65, though a break over the old support at 1040 may be a struggle. Followed by a a deep and strong bearish move with potential much lower.


The next set of charts show a Fractal pattern, which has occurred pre-the 1987 crash, and pre- the fall 2008 crash (and is therefore part of the above weekly chart). The current pattern over the past 2/3 months has unfolded in a very similar manor. A short correction from the current levels would be totally in keeping with this fractal pattern. - ( Obviously this does not mean a crash is coming, however it does highlight a favourable set-up is forming. )