Mar 102011

Over the last month or so I’ve written about my expectation for a correction.  We’ve had that and the question is will the correction continue or will we resume the uptrend in equities.  Let’s look at the charts:

Here’s the bund chart:

And ES:

It seems many people are expecting a move up.  I think down is more likely for two reasons:

  1. The bund broke out to the upside
  2. Stoxx is hoovering around the low of its trading range, actually breaking below it.  This tells me traders are accepting lower prices.

A few things to note:  The first move outside of balance can be a fake-out.  And if we break to the downside (in equities) that doesn’t mean we won’t go up.  We could go down and shake out all the longs and then go up to retest the highs.  And this makes a lot more sense to me.

In any case, two inside days in a row is rare and to have them on both bund & ES tells me something big is going to happen.

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