Written By Basilio Chen

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We are resuming recording of important trading events.

On September 18, the system gave a signal with a potential for a long term effect.  A SHORT signal was received at 2010.00 with conditions significantly overbought in the S&P 500 equity index.

This is shown in the following chart:

2014 calling top Sep 18

Noticed that the negative divergence around September 1 from the last Uptrend leg that started in Aug. 7.  A classical Wave 4 (value of divergence was 0) and a final exhaustion move with large price increase but little energy (divergence – in blue – did not reach the strength from before even though prices went up – ie an empty move – all signs of exhaustion confirmed by overbought conditions).

That makes this move more interesting is the prices of Copper (in our opinion) which have now returned to test the low 3.00 mark and fundamental events regarding global economic slowness in the last remaining economic pedestal – China. The correction of China economic contraction is gaining attention especially with Hong Kong social unrest from the “Occupy Movement”.  (Hong Kong is key for bonds for the Asian region including China). 

With the US zigzag GDP estimated at 2% now and Europe remaining at an anemic 1% and now China reducing its growth estimates from 8% (a year ago) down to 7.6% and with other experts further lowering estimates to as low as 7.2% present areas of concerns for most macro economist. Given that the US central bank has been reducing its Quantitative Easing (QE) program with an estimate to end shortly, this would reduce a significant amount of capital influx into the capital markets.  Add also increased global geopolitical activity.  All of this added together and if the theory is correct, there is a stage of maturity requiring taking note.

Furthering the events of September 18 until today, we have broken for the first time in 24 months, the 200 MA of the 720 chart as shown below:

ES Oct 10 2014 Channel Down

Notice the channel that has developed since Sep 18 SHORT and also the increasing volume in the down channel with prices down that has exceeded the bottom of the channel with speed.

Volatility is increasing making options trading an attractive vehicle.

Prices stand now at the 1890 support level (1893) in the daily charts while down move is just beginning to reach oversold conditions, meaning there is further room for selling.

Note – The information in this article is both private and for informational purposes only.  No advice or recommendation is given even if the language may suggest so.