There Will Be Rebound, but the Big Picture looks ugly

After the "sell in may and go away" strategy has proven to be successful this year, the month of June has brought even bigger losses, giving me the impression that we are currently in a "sell more in June and short to the moon" strategy. Sentiment has quickly turned very negative, and the break of 12000 in the Dow Jones Industrial does not improve the bad mode among investors. Looking at the daily charts of the major stock market indexes, the chances are definitely high, that equity markets are heading for a major top.

The supporting factor for equities are the incredible amount of cash sitting on the balance-sheets of big corporations. Some sectors also offer reasonable valuations and good dividend yields. But one has to remember: S&P500 P/E`s have fallen several times below 10 in the history of the US stock market. In addition, P/E´s are calculated with analysts expectations, who often are totally wrong.

Markets now enter very oversold conditions. This alone is not a reason to start to buy the dip. There are some indications, that selling pressure could be lifted during the next trading days, as some positive divergences start to unfold in the 60 minutes time frame. The big threat to financial markets remains Greece. If the EU is not able to handle this problem we will head much lower. In this case, the USD will start to rally and commodities could come under heavy selling pressure. The only commodity that has made a fresh new all-time high during the past week is corn. In my view, soft-commodities are the least dependent on economic cycles.

Investors should get ready for a market rebound. If the SPX500 is able to hold the 1274 level remains to be seen. More robust pockets of supports are 1249 & 1235. One rebound is not enough to go long, one big day in the red neither. A simple but powerful indicator is the VIX Index. If the VIX breaks above 20, we should refrain from opening long positions. For now, we have a positive divergence unfolding with the VIX trading below it´s may low, while equity Indexes have broken their may lows.

Charts below are single stock ideas first, Indexes last. Neither Silver nor Gold are currently on our buy list. Just wanted to show where support and resistance are.

Meyer-Burger daily

Silver daily

Syngenta daily
Mosaic daily
Google
EURCHF daily
EURUSD hourly
EURUSD daily
DXY daily
Wheat daily
Corn daily
Crude daily
Gold daily
SMI hourly
SMI daily
DAX hourly
DAX daily
Eurostoxx hourly
Eurostoxx daily
VIX daily

QQQ hourly

SPY ETF hourly
SPY ETF daily
SPX100 daily:
Russel 2000 daily
NYSE Composite daily
Dow Jones Industrial daily

A Positive Stock Market Cycle Is Slowly Coming To an End

Market Tops take time. From 2006 until 2008, it took almost 3 years to build a top in the Equity Market. I do expect a kind of repeat, starting in the middle of this year. Equities could remain on positive ground until Mai, but working on a distribution pattern as in 2007. None of the problems we have in today's world have been solved. Politicians keep on lying to the public, in order to get reelected. Central Banks get more and more involved with politics. This is fatal. Those Central Banks will lose the fight against deflation. The big deflationary threats will come from a housing crash in China, an shrinking economy in Japan or a strong fall in commodity prices coupled with a rising US Dollar. In my view, we are once again heading for the perfect storm. When politicians will see this, they will go to war. As in 2003, when the US Congress "found out" that there are weapons of mass destruction in Iraq. We have to be very careful with equity investments going forward. This economic recovery is to weak to be self sustaining, in Europe, as well as in the US. As long as the S&P 500 trades above 1270, we still have the power to rebound, but a break of 1290 would erase the chances of an inverted head and shoulder pattern in the S&P500.

The Dow Jones Industrial traded sideways for 2 years before it broke down.

The NYSE A/D line is still a positive factor for the market, but we have to hold the previous low during this correction
SPY 60': closed the gap, but the new low is a small sell signal. 129.56 has become a important support
QQQ daily time frame: Market has to avoid this double top, 53.85 has to hold

QQQ 60' time frame: A small sell signal in place, short term lower prices in the cards
Russell 2000: First we had a break out, now looks like a fake out, 802 is support
Eurostoxx50: Still in an uptrend, but no conviction to go long here yet. DAX: Has more downside potential from here: 6940 gap support, 6850 strong support
SMI: Weighted down by "heavy-weighted" dividend payments and a lagging banking sector. GOOG: After a break-out, a break down.... has to stabilize around 535, not a buy yet
SYST: Break out after bid talks. As long as the stock trades above 146.5, its a buy
EURCHF: sideways, but spectacular :-)

EURUSD: Short position stopped out @ 139.4, wait for another shorting possibility
DXY: A re break of 75.69 would start a bottom building phase. Expect a cycle low mid-year.
Corn: Holding above break out levels, but could start to trade in sync with crude.
Wheat: Still in a trading range

Gold: Broke out, thanks to the help from Central Banks. Uncharted territory
Crude: I expect a top in the coming weeks.

Bears Throw in the Towel

The Bulls charged ahead during the past trading week, erasing almost all the damage caused by the tragic events in Japan. The NYSE Composite Index is still trading slightly below its 2011 high but the NYSE cumulative advance decline line has already broken its highest level of the year, definitely suggesting that there will be another move to break this years highest levels. The US Market is driven by a strong Energy Sector, where the Energy ETF XLE managed to break out. In the NASDAQ market we witness a strong out performance by the Biotech Sector. Health care and Financials are still lagging the overall market, but the big picture, on a technical basis, remains extraordinary strong and healthy. Things can change quickly and the market is once again overbought, but for now, the message is loud and clear: Buy the dips.

The Chart below plots the daily price structure of the S&P500 ETF SPY. I expect the market to make one last move to the downside, before we break out, and move towards 1400. I expect a good entry level for this trade at around 1300. If I am right, we have made 2/3 of this consolidation.

The only one, that could derail this current rally is the USD. The DXY is still sitting on major support, and the break out in the EURUSD has not taken place at 1.4230 yet. If we break 1.4040 in the EURUSD pair to the downside, we should have a look at the DXY. A break above 77.5 would not bode well for equity bulls.

Still trading below resistance at 1.4230 DXY: Sitting on major support

NYSE A/D Line: The strong performance in Small Caps helps the A/D-line to a new high. Small Caps outperform, another short term bullish sign for the market

NYSE: Will follow AD-line, even if we get another pull back

VIX: Volatility sitting on the downtrend, maybe we get a small bounce from this level.

BTK: Biotech outperforms the overall market

QQQ: Negative divergence in the 60' time-frame, don't chase the rally, buy the dips

XLE: The Qaddafi Break-out

XLF: under performing sector, avoid

Equity markets on 60': All showing minor to strong negative divergences, don't chase the rally

DAX: Outperforming but ahead of strong resistance

SMI: Heavy weights Health care and Financials are lagging, under performer

SDF: Potash in Europe, outperforming, but also here we have strong resistance

Syngenta: A break of 320, sparked by a rally in softs, would bode well for the bulls

Corn: Heading towards last resistance at 740, break-out @ 750

Wheat: After an impressing Head and Shoulder top the market rallies back, the re break of 760 is bullish

Crude Oil: Daily Time frame shows weak momentum, resistance @USD110, cycle could turn negative in April

Crude Oil 60': Not really gaining on strong momentum

Gold: Every trade gets sucked back to the USD1431 resistance.

Gold 60': Stuck in a range, the break of USD1431 resistance did not spark another rally