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Thursday, May 3, 2012

Charts I'm Watching: May 3, 2012

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The RSI channel we analyzed (in excruciating detail) in yesterday's post [To Scalp or to Swing?] is holding so far.  As long as it does, the shoulder line should hold.

If we can break that last little fan line (k-4) things should accelerate a little to the downside, probably to test the k-5 line, which I believe will correlate with the H&S pattern neckline.

How do we get there?  Look closely at the right shoulder of the H&S pattern.  Viewed on the 30-min chart, we can see an almost completed...H&S pattern targeting 1372 or so -- the neckline of the larger pattern.


It seems like the market is waiting for a sign of some sort for any serious downside to develop -- which will likely come from Europe, China or MENA.  Why?  If good economic news drives the market up, and bad economic news increases (even falsely) the odds of QE, then it stands to reason that only an exogenous shock -- one over which the Fed has less control -- will drive prices lower.

Having said that, the entire economic picture has the feel of a triangle pattern.  We careen from good news to bad, euphoria to despair -- all the while drawing closer to the (IMO) inevitable day of reckoning where the mountain of debt shakes just enough to unleash a major landslide.

We see a preview of the effects in places like Greece, Ireland, Portugal and increasingly Spain.  Total debt to GDP is much too high in these countries, but the US tops them all.  Official reports put acknowledged debt/GDP in the US at 101.5%.  But, as this Zerohedge article points out, the contingent liabilities such as the NPV of unfunded pension and health care drive our true debt/GDP to well over 300%.

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