Mid-Week Update: A Critical Moment in Markets

Potential Trap patterns developing in key markets — WATCH FOR CONFIRMATION.

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INTRODUCTION

Before we begin, I need to emphasize the difference between a Setup and a Trigger:

A number of potentially important Setups are developing in many markets — IF these confirm, the implications (in my view) could be significant.

One way or another, we should know relatively soon.

Yesterday’s CPI and FOMC were important catalysts and markets reacted strongly, but under the surface a number of charts remain concerning, and COULD prove critical — I am watching for confirmation Triggers the next few days, and will update further in the weekend Global Markets Review.

The theme of today’s post is:

“When something isn’t doing what it should be doing, pay attention.”

Let’s get started:

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The S&P has finally reached the channel resistance I’ve been tracking for months.

• In fact, it gapped through the resistance and then faded the rest of the day.

• This creates the SETUP for an exhaustion gap, IF it closes the gap within a few days — the faster this happens, the more unstable the market is at this juncture, in my view.

• I should once again emphasize that I’m not Short the S&P or NDX here, or looking to Short the main indexes. (I don’t Short uptrends, period.)

• My focus remains on the weakest areas of the market — all of which are still in downtrends and could be developing TRAP patterns — which we’ll cover in detail later in this Post.

Nearly all core Breadth signals I monitor remain weak.

• The only one with a small improvement is the High-Low Oscillator (below).

• All other Breadth indicators remain on Sell signals — indicating the majority of Stocks are no longer in uptrends (or perhaps worse).

• Even here, note the High-Low Oscillator is barely rising — ANY small decline in the market here would form another lower high in the oscillator, and confirm a continuation Sell signal.

• Remember: when a model is already vulnerable, continuation Sell signals generally lead to much worse outcomes.

Core Risk Models are a big concern at this time.

• A major spike triggered yesterday — the first of this rally since the April lows — while the model itself is now extremely overbought.

• This combination doesn’t guarantee an immediate Top, but has been seen near many important Tops throughout history.

• As always — for confirmation, I am watching to see a turn DOWN in the model.

• I’ll update subscribers if/when the signal is triggered.

Next, a number of additional signals I’m tracking, as well as individual areas of the market, which add significant concern IF their Setups are confirmed.

We’ll go through them one by one.

Also — it’s important to look at why Volatility could be on the edge of a knife here.

Continuing: