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Monday, October 12, 2015

Market update 10/12/2015 - Does this rally have legs?

Does this rally have legs?

I've been somewhat pre-occupied with calling the top in metals, and miners, so I thought it would be good to take a close look at the broader market, and get back up to speed.

In the last update, we were anticipating a sector rotation, and further market consolidation; and since then we've seen got both. We even saw a short squeeze in many of beaten up stocks we've been watching - including $TWTR, Energy, Emerging markets, China, and even Gold miners.

The $VIX took out my 16.60 target, called-out in my interview with Dale Pinkert at on Sept 21.  Obvious resistance around the 23.50 area, and that becomes the line in the sand, and when the $VIX get's back above that area expect more panic selling. 

I believed the market was trading into a sideways consolidation pattern, but the latest rally - as powerful as it was - looks more like wave C of 2, in an ongoing bear market. Turns out that while the emerging markets and gold seem to be trading into the top of a broadening triangle pattern, certain chart views of the US markets look like a continuing bear market in wave 3.

Let's first compare the pattern in Emerging markets to the US. $EEM in a perfect broadening triangle.

Now let's look at the 2 hr., view of the Dow. It's just way too soon to call this a triangle pattern, and could very well be a suckers rally in wave ii of 3. You don't want to be wrong here, and I'm taking no chances, because the next target in wave 3 looks like Dow 14,000 (14,200), which was the breakout point in late 2013. That breakout was on light holiday volume, and that new support was never retested.  
All good things must come to an end, and now it's time to take profits, and let the chips fall where they may. We'll know before long if this is wave 3 or not; I'd say within a couple weeks, as this rally has more to do with a pump into OPEX - on Oct. - 15th than anything else.  

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