The Die Is Cast
Since the October rally ended, the SPX formed what looked like an “extended distribution phase” in the form of a rounding top. This is even more apparent on the Dow Jones Composite Index. Early June, it dropped below its 100-DMA, it slightly breached its December low, but rallied. A second attempt was made to break through which also failed. The rallies found resistance at the 100 MA and last week, a third attempt at breaking the bottom trend line also failed … or did it?
With Greece’s default the Dow Jones index is completing its rounding top/descending triangle pattern by finally making a new low. A Monday morning opening gap to the downside could be the perfect way to end this formation. If so, this could be the beginning of the correction which has long been expected.
Current Position of the Market
SPX: Long-term trend – Bull Market
Intermediate trend – Waiting for confirmation that the ending diagonal is complete.
Short trend – Neutral
Greece’s decision to hold a referendum on July 5 and not to accept the final offer made by its creditors resulted in a Greek debt default and is currently unsettling to markets. Should that be the case, SPX should follow suit by extending last week’s decline.
This could be the end of the 7-year cycle we talked about, closing its grip on the market by applying pressure which is increasing gradually every week.
USA markets will be closed on July 3. It will therefore be a shortened holiday week of trading. My current concern now is whether or not World equity markets will resume a 10% correction down or more. This period of a cycle that we work with has a very high historical correlation to 10% or greater reversals in the DJIA. The question is whether that decline has already started.
We defer to our models for the confirmation of this move and any other future moves.
Gold fell to a low of 1167.10 on Friday, June 26. . This may be important because Silver fell to a low of 15.45 on Friday, June 26, well below its low of the past three months.
Something big may be in the works. It is ironic that the Greek debt default, the lack of a conclusion of the USA/Iran negotiations and The Supreme Court’s decision to uphold Obamacare subsidies of The Affordable Care Act are ALL historical events occurring at the same point in time is not a random act.
This decision upholding the IRS rule giving all Americans access to premium tax credits, millions of Americans can breathe easier today knowing that there is access to health care.
I believe that The Supreme Court validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim. President Obama has already creative secret deals that Americans are not yet aware of. I fear that these unchecked political power in the Executive branch will be misused again and again by the President.
At this time, we are currently experiencing a new “socio-politically-economic” revolution. The passing of this Affordable Care Act (aka Obamacare will continue to bankrupt the county and many of the people in it. It is only affordable for some in terms of lower premiums. The other side of the coin is that deductibles are so high that many still cannot afford health care under this Act. For them, it is anything but affordable.
The yield on the benchmark 10 year note closed last week at 2.26%. This week’s close was 23 bps higher at 2.49%. The 30 year bond yield closed the week at it 2015 high of 3.25%. Current financial market conditions with low levels of interest rates have resulted in negative yields for some Treasury securities trading in the secondary market. Negative yields for Treasury securities most often reflect technical factors in the Treasury markets related to cash and repurchase agreements markets and are at times unrelated to the time value of money.
We had a confirmed signal to exit the ETF “TLT” on June 3, 2015 at 118.39. Today, its current prices 115.23, I am expecting this price to go lower.
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Chris Vermeulen
