Springheel Jack’s Weekend TA Update
We’re reaching critical levels on a number of charts. A potential double-top is forming on SPX chart, just below the critical 1440 area pivot.
Similar resistance levels are being approached on numerous equity indices. For example, the MSWorld chart for world equities ex USA shows a beautiful reversal head and shoulders pattern pointing back to the lows over the last decade. There is also a declining channel from the 2011 high. A break in the declining channel – being tested now – would be very bullish.
On the flip side, there has been a strong correlation between world equities and the Euro over the last decade, but the prospects for the Euro are dimming. Even the pro-euro Economist conceded this weekend that there may be no alternative to a Euro break-up in one form or another.
If equity bulls can drive equity indices over resistance then the technical setup for a test of the 2007 highs on SPX will look good, but that still seems unlikely.
Dow Theory watches the The Dow Industrial Average and the Dow Transportation Average, looking for a divergence between the two. If one makes a new high while the other does not, it often signals a reversal. We saw divergences at the 2011 and 2012 highs. There is a very strong divergence right now:
Bulls might yet win. Equities often do well during the second half of the presidential election year. But the Euro backdrop and the technical setup aren’t making that look easy. If the indexes fail to go higher, we may see a brutal bear market ahead.