Europe Recovers Early Tuesday, A Big Picture Look

Tuesday Sept 6, 2011 6:45 AM CST

European markets have turned positive after selling off following the US weak day Friday. It looks like our original thesis was correct. Friday and today is a correction with higher prices to follow in mid September. As we showed this weekend, the QQQ is still on  a PAR SAR buy signal. 

There is no point in selling into weakness. We allowed this weekend that Friday was a low volume day, typical of what can happen when everyone is out of town. It looks short term like that was the case. However we are still concerned that overall the markets have turned weaker. We think the similarity of the energy service, banking, and summation index to the summer of 2008 is a warning signal. 

This morning an reader asks about the view of the long term DOW Industrials, Let's tae a look. 

Monthly DOW with MACD, RSI, PAR SAR, 

Appreciate that this is a MONTHLY chart. Monthly charts move slowly like turning a giant oil tanker at sea. This is why buy and sell signals on a monthly chart are important. But also appreciate that by the time the monthly signal has occurred on for example the sell side, the markets have indeed sold off. So from a weekly standpoint we may be oversold and ready for a bounce. I will show both to make the point; 

On the monthly chart the long rally is demonstrated by the RSI at top and MACD at bottom. Neither have given sell signals for the duration of the rally since 2009. Now both are curling over about to flash

SELL! In the main panel the blue dots are the PAR SAR. It details the A B C corrective nature of the market since March 2009. That has now ended. The two blue dots are sell signals. So in the big picture, all the things we have detailed for you this year, the week BRICs, the weak SOX semi conductor index, the high in oil and silver in early May, all have now been confirmed by the larger market rolling over. 

Weekly DOW, Same Signals

Action takes place in fractals or smaller chunks of time. The Weekly Chart generates more signals, otherwise what would CNBC have to discuss ever day, okay just kidding. But here is is more obvious that the DOW bounced off the 10,500 support. It looks like 12,000 or so is upside resistance. RIS is so oversold it is bouncing, MACD at bottom has clearly rolled over, and the PAR SAR in the middle is on a sell signal. 

The top is in. But, wait before you leave your monitor, remember markets develop in fractals

DOW Daily

The DOW is still in  buy mode on a daily basis despite the big sell off Friday. This is a corrective move back up; the resistance at 12,000-12,20 is more obvious here.

So, I hope this illustrates where we are in the big picture. DOW can rally some more on a daily basis but the next daily sell signal will put all three daily weekly monthly in sell territory. 


 

Comments

[John Burke]

Okay, I'm confused. So higher prices are coming or the top is in?

[Dennis Elam]

The top in the market is in, recorded in May and July.
But this is what confounds most investors, the time frames move at different speeds. By the time a monthly sell signal occurs, the daily chart has likely bottomed and is ready for a bit of relief rally. The focus of tv cable news is of course the short term moves which keeps most viewers off balance.
The action so far today is much like Oct 1987. That Friday the markets were down and then monday opened much lower. The markets recovered until noon, then the fools running the NASD and NYSE remarked that they might close the markets for trading. Everyone ran for the door and the market dropped 500 on the day. I don't think they will do that today but we are setting up for an extreme oversold short term low.

What time frame are you asking about, that is the reason I posted the monthly weekly daily this morning. I would guess we have a big down day today followed by some sort of rebound this week but the day is still early.