Reading the market.

(quote online)

Finally we get to see a bit of red. At least punters like us, who have missed this entire advance from the Draghi low can go and get ourselves a cup of coffee and ponder our next move! The way the DAX traded late in the session yesterday, it looked like the market was beginning to build in expectations of a rate cut, a significant EFSF programme for Spain, a reactivation of the SMP, an ESM banking license and an LTRO as an added bonus....all this Thursday alone. If ever there's been a case of hope built into an event (the ECB meeting), then this one has to rank right up there amongst the all-timers. So far, the market loves whatever it is smoking. But so did all us cycling lovers before the most hyped up Road Race finish that was meant to bring Gold for Team Wiggins/Cavendish last Sat. We know what happened. Expectations are a bad mantra to follow. Have none and life's cool. Things are on edge here, as today's Daily will go onto prove. We choose the European 600 Index chart to present the picture that should now be firmly etched in the minds of every market participant. This picture takes a more cultured medium-term view, which should make for a welcome change as many of us have been slavishly slapped around by the tape like little kids since late last week. Since the Index topped in early 2011, a powerful downtrend line has been operative. Critically, price has now almost approached this downtrend line. Simultaneously, an uptrend line has caught three solid touch-points since the late summer low of last year. This makes for an extremely juicy set-up. One side of the market is going to give way...and soon.

Three outcomes are now possible. Under Scenario A, the market blasts through the downtrend line and the Central Bankers deliver a Game Changer. Unfortunately, as we now know, large European corporations are not able to deliver clear revenue/earnings guidance because of European macro and Chinese slowdown issues. De facto, the onus is now on the Central Bankers. Bulls need to hope and pray here that Draghi has not bitten off more than he can chew. The good thing about Scenario A is that we will know pretty soon. Can we commit to this scenario at this juncture? We have no edge and it would be a pure guess. Under Scenario A, we will get killed in our book. Next is Scenario B. Under this scenario, the market kisses the downtrend line. It takes resistance and turns back down. That's still fine for the bullish case as long as any pullback stays above the 200 DMA. A kiss off the trend line and then an upside breakout that stays the course for the rest of the year as the market continues to climb the proverbial Wall of Worry....would make for an eminently plausible scenario. Under Scenario B, we have time to position for the rally. Finally, we have Scenario C. We call this the "Monster Mess with the Head" scenario - and the one that kills everyone. Here, the market takes out the downtrend line and accelerates higher in a fast move, only to rip the guts out of all remaining bears. We close all our shorts at the top and in a state of panic, get the book long up the ying yang. CNBC goes nuts with pundits calling for 1600 on the SPX by year-end. It's too much to bear missing the rally. We make the bull call and then, as is the norm with headline driven markets, the market turns sharply lower and gives back everything it has made faster than you can say Koji Yamamoro (Japan's top gymnast who finished yesterday with a back somersault but landed on his face and knees and had to unfortunately be helped off hopping on his right foot). Having neatly laid out the three Scenarios, we're left to grade their probabilities now. Our guess would be 30:30:40 for A:B:C. If A happens, we are left behind and scrambling. Draghi sends all the bears to hell. B would be a decent outcome and one we could get on top off. C would be the nightmare where we get long at the wrong level and get whipsawed. Well, if do get whipsawed, so be it. Deydun Alpha had a decent track record for short-selling and we'll back ourselves to catch a potential fast reversal. Meanwhile, note that the Trannies have yet to break free from recent highs as does the SOX, Russell-2000 and EEM. And China has yet to catch a bid. New low for 2012 for SHCOMP today suggests they need a printing press soon. Winning Golds at the Olympics ain't enough to move their markets into the bull zone.

 

CropCircles Murrey Math char. I believe this author is a friend of TH Murrey.
CropCircles says:
Still short the S&P from 1421.88 "THE TOP", took profits from the not getting greedy line. Hit it again at 1374.81, 1375, and again today on the close. Could consolidate here for about a week and a half which is preferd in order to trap a few bulls that see it as an opportunity to get on board, only to be taken to out as the market fails to hold 1375. Those that are long are in for sure and holding, looking for new highs. Still short The Greatest Ponzi in the Sept. from 151.15 and 152.28. Still long gold from 1562.50



Here is my chart. I have 0 exposure at this moment. I will be on vacation starting next week. GLTA.

update: 8/1/12, about 2:30
As GS said yesterda, no QE today. I see further down from here. Volume weighted targets are 1367 1346 1327. ES quickly hit 1367 then pulled back. Let's see what's next.
Also showed multi-timeframe clouds. it generates good signal for trend validation. Short Term cloud is below Long term right now. Unless es takes out previous high in very short time, LT cloud will serve as resistance until we bottom again.