Stock Market Is In The Danger Zone – Risk of 1998-style Asian Crisis, Retail Gas Prices, Major Bank Slashed US GDP Forecasts, Apple Reports Lower Profit
October 28th, 2013
The S&P 500 moves into the danger zone
Well, this past week, we saw the AAII Investor Sentiment registering only 17.6% bearishness, whereas the long-term average is 30.5%. Furthermore, we may be seeing evidence that the Russell 2000 and the financials, represented here by the Select Sector SPDR-FinancialXLF -0.10% , the former market leaders, may have begun to lag in this next move higher.
Furthermore, the divergences I am seeing in our daily and weekly S&P 500 charts are becoming more pronounced. Lastly, I am unable to get past the striking support that the weekly slow stochastics have given to this rally from 2011 being a large diagonal. That makes this top a very dangerous one, indeed, which will see a very strong reversal which will likely catch most market participants by surprise.
Based upon where we topped this past week, I had to slightly adjust our Fibonacci Pinball calculations. Since we often top at the 1.236 extension of waves 1 and 2 for wave iii of 3, I had to adjust my placement for wave 2, after Garrett Patten (a new MarketWatch contributor) pointed this out to me. So, our next higher target in the E-mini S&P 500 futures ESZ3 -0.11% is the 1763 region (1.382 extension) up toward the 1776ES region (1.618 extension). These are the traditional targets for a 3rd wave.
If the market is able to move into this region over the coming week, I would strongly suggest selling longs and moving to the sidelines….
BIS sees risk of 1998-style Asian crisis as Chinese dollar debt soars