As frequent readers of The Trader know, we have been rather bearish on the markets over the past months. The formation we wrote about during the “topping” out phase, all broke down, and have now reached crucial support levels. We are not suggesting this is the all in bottom, but from a trading point of view, many European indices are reaching support levels and we are probably looking at an aggressive boune to the upside. Our long term view is still with a bearish bias, but in the short term time frame, we expect the support levels to hold.
Essential chart update below.
It feels the markets have been all over the place, but in fact, the “real” markets have traded in a range over the past weeks. The Eurozone momo countries have fallen aggressively over the past months. IBEX and the MIB have reached some short term support levels. If these levels break on us, it will be nasty. SPX and the DAX on the other hand, have been accumulating for a break out soon.
Essential charts below.
Unfortunately, Apple won’t save Europe. The Spanish market is once again showing very weak action, followed by the Italian MIB.
European charts below.
As investors finally seem to be realizing the reality, let’s review the bull argument. The Trader has been arguing that the perceived bull is larger than the actual bull. By that we mean, majority of indices have not performed as well as one might read in the main stream media. In Europe the DAX has performed relatively well this year, but there are many other indices actually trading in negative territory. But not the broader indices, or?
No the Eurostoxx 50 is still up on the year, but diminishing. The point is, if you didn’t catch the first couple of weeks in Januaey, you are down on many indices, especially the Spanish Ibex, but also the Eurostoxx 50 and the Italian MIB. Once again, the real bull is not as strong as one might believe.
Quick chart update below. We clearly see how several European indices all show the same pattern. The Bernanke rally has faded, and we marked a short term top. What is interesting, is the fact that we never even tried pushing the previous highs. This is the same psychology when we topped out over the previous tops. Did Bernanke fool the last momos covering their shorts, and more new “smart” longs entered the fake move?
One thing is sure, Spain’s Ibex is trading very badly, and we strongly believe Spain will become the next major point of focus.
So, let’s go back revisiting that great bull of 2012. Investors are once again massively bullish, and the latest to add to the uber bullish argument is Mr Biggs. As we mentioned yesterday, this is probably a big warning signal for the market. Many talk passionately about the bull, but prices have actually not been that bullish at all. Looking over the past 30 days of action, many indices are flat or even minus in Europe (that’s where the problems still are). The uber bull we saw in January and February is clearly fading, at least when looking at some of the European indices. Is it worth the risk putting the money to work for the past 30 days with many indices at flat or minus, you decide.
The extended Santa Rally has surprised many. With the light volume melt up, many are rather confused at these levels. Shorts sweating, longs enjoying, but want to exit fast, if this turns lower. Volatility has collapsed, and people now hate anything called theta. HFT still dominating the market.
These are all ingredients for some very interesting action going forward. All indices look rather toppish and some key indices are hitting major resistance levels.
Below are essential charts.
They are taking over the Exchanges, but still totally unregulated. The gap between the HFT community and the regulators is increasing by the day. While regulators still try figuring out what HFT actually is, how they trader, what various strategies they deploy, the HFT firms are spreading and doubling their share of all trading on some exchanges. The Nordic countries with a long history of electronic trading are experiencing the HFT “bug” as the “robots” doubled their share of trading in 2011. Yes, and the exchanges (private companies) are still telling us the HFT provide liquidity, decrease volatility and make the market more efficient. Nothing could be more wrong than these arguments, especially when the HFT pay quite hefty fees to the exchanges. Chart by Nanex, ain’t it beautiful? From Market Watch;