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Markets around the world (S&P 500, Russell 2000, EAFE, Emerging, Shanghai and more) have all formed “Look Alike” Patterns, each testing key support at (1)!
With correlation so high around the world, if one breaks a “Domino effect” could take place.
If support would break for each of these, the markets could become a “Slippery Slide” in very fast order!
The “Look Alike, Domino Effect & Slippery Silde” setup should be respected all the more due to the chart below…
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Multiple support points look to have formed at (1) in the chart above and recently the Dollar has broken above a falling channel that has been in place sine the first of the year at (2).
In my opinion, Risk isn’t all about a declining market….when it comes to portfolio construction risk is all about “how many assets you own that could decline together!” With so many markets acting the same these days/highly correlated, risks are much higher than normal right now. Great escape time? (see post here)
Support has not broken in the to 6-pack above…….. yet the ”Power of the Pattern” does suggest that the odds are better than 50/50, that support will be taken out, due to the “rising wedge patterns” and the breakout in the U.S. Dollar. Risk management is very important right now!
With the broad array of tools we have….this situation could lead to great opportunites!!!
That’s a great set of 6 charts, not seen it elsewhere, many thanks!
ckj…Thanks for the kind comments. I think the russell was the lower left chart…
Great post. Russell also looks pretty vulnerable carrying all that resistance. What a burden! Makes me tired just looking at it!
Robert…..IF support does breaks I do suspect a moderate decline. We picked up some inverse positions, monday before last, the day after the Bin Laden news, on an upside wick failure day. If a person is wanting to score on defense, shorting the Emerging markets arena, due to dollar strength makes good sense to me.
If the six pack do break support especially in the S&P do you see a major decline . Would you wait until support is broken or would you buy the short S&P EFT now with a tight stop .