Feb 152011

I’ve written over the past few weeks that I think we’re near a short-term top in the market.  As usual, I was a bit early.  But I did say that I thought it’d stop at 1330:

I believe the ES is going to make a temporary top.  It could continue up to 1330, that’s about the top of my estimated range for the top.  So we have ES in “top territory” as well as Stoxx.  I’m not saying this will be the end of the bull market, I’m just saying a nice correction would be healthy for the markets and would provide an excellent buying opportunity.

Looking at correlated markets gives me several clues.  The Bund has found support at 122.41 and is in a 6 day trading range.   So while ES is making new highs, the Bund is not making new lows:

The Stoxx was looking amazingly strong, much stronger than ES.  Now that has reversed.  ES is continuing to make new highs but Stoxx is not.

I don’t have a chart of the Euro but it is moving similar to the Stoxx.

Here’s ES:

It seems like the markets want to turn and the US stock market is the hold-out.  They’re all waiting to see what the US markets will do.  I can sense it in the tempo.  Bund has a strong move up until ES opens, as if the Bund traders expect ES to drop down.  ES doesn’t drop and move sup, the Bund traders give up and close out their longs & the bund drops back down to the bottom of the trading range.  This has been going on for 5 days. Same for stoxx but it’s trying to go lower.

The alternative is that ES continues up.  I have to force myself to think of such an unlikely scenario.  In that case Euro could move up, the stoxx move up, and the bund could break out of its trading range to the downside.  So I’ll be watching for signs of this.

If ES does drop, then the correlated markets could really move as they won’t have ES holding them back.  Then the turn will feed itself as stops are hit and laggards bail out.  It could move pretty quickly, as most good opportunities do.

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