On 5/14 I ran a post discussing “Look Alikes, Domino’s and Slipper Slides.” (see original post here) Below is an update to the prior Global 6-pack, which at that time, was reflecting that key global markets had created “bearish rising wedges” and each market was setting support.
Since the original post, the Shanghai index has broken support and the 500 index is pushing very hard on support dating back to the 2009 lows.
CLICK ON CHART TO ENLARGE
The “Power of the Pattern” is suggesting (rising wedges decline in price around 65% of the time) a high degree of caution is due right now because…All these markets “look alike”…with correlation so high, if one breaks a “Domino effect” could take place and if support gives way prices could resemble a “slippery slide” very quickly!
Support is still in place in 4 of the 6 charts. With Global correlation running at 90% plus, risk is high because if one key stock market breaks support, odds are very high more will follow!
If you are a long-term/ 401k investor, would harvesting some values up here hurt? The worst case if you harvest up here and the market moves higher is… lost opportunity, which is much better than lost capital!
Gary…I am surprised by two things…market is almost at highs for the year and bulls are dropping like flies and at the same time investors are buying a ton of put options! Smell of too much negative feelings? Could be! At the same time, the largest number of small traders are loading up into long bond futures contracts. Hmmm….few stock bulls and a ton of bond bulls!
“..lost opportunity, which is much better than lost capital!” Amen, amen, amen Chris.
Would that mean if the support does hold they will have to cover and that should really drive the upside swing hard? So in my mind if we do not see the breakdown of support that would mean one should invest in 2x or 3x ETFs… and maybe on the down side only -1x ETFs.
Gary…I would have to assume the markets are not buying into the idea of a decline. One thing of note…the put to call ratio is very high right now, which suggests that a ton of investors think they are going to get rich on a big decline.
One thing is confusing me a bit. with all the up and down of the market the VIX does not seem to be responding. Can you enlighten me?