Are we there yet?

The odds are stacking up now that I have found the top in US stocks, as per my Weekly Wrap analysis (and my MW Trader coverage of the FTSE).   The S&P reached a Fib target on Friday (w5 = 0.618 x w1-3) and yesterday, broke below my wedge (ascending triangle) line.  The Dow already has exceeded my 16,120 target and hit another one at 16,180 (within 4 pips).

This wedge break is very ominous as it almost always precedes at huge decline – at least back to the start of the wedge.

Bullish sentiment is extreme (see WR) and virtually no-one is calling for a major collapse.  Everyone will be buying the dips, as they have since 2009.  Old habits die hard – and that will be the reverse rocket fuel for the decline as traders/investors see their latest longs are under water.  That is when panic will set in – a most delicious prospect for we merry band of bears.  That would make a very nice Christmas present!

This morning, I have an EW count in the S&P:

The decline off yesterday’s kiss high is sharp and in keeping with a third wave.

Also, VIX is showing signs of life, having rallied off the near-12 reading last week to yesterday’s 14.  This should be the start of a massive VIX rally – a bearish omen for stocks.  The key level to break is 20.

There are several highly-watched US reports out this week including the jobs and housing data, so volatility should pick up, thereby aiding the VIX.  But this morning, I would say the bias looks to the downside this week.

And what a superb opportunity to cash out of any high flying stocks such as Apple – here is the latest picture:

The rally off the five down to the July low is a clear A-B-C counter-trend rally and the C wave is a clear five up.  And it has reached my upper wedge line.  As I said in my WR, what more do you want?

And there is a small neg mom div at the C high compared with the A wave high.  This is classic.

And if Apple is toppling here, that will drag tech stocks down and hit the Nasdaq hard.  And you have seen the latest Nasdaq COT data – it is being teed up nicely.

Stock markets have become so complacent that we bears have been sticking out like sore thumbs.  But I sense our time is soon coming.

USD/JY

This has been a great trade, but has become very crowded with specs hugely long.  With stocks now looking very wobbly, this is a great time for me to take profits:

Besides, it has reached the level of the May high and I expect at least some profit-taking here.  That is normal.

I expect at least a 100-200 pip dip here, which could be sharp if stocks break sharply.  Both stocks and the yen trade are liquidity plays and I believe the Fed has started to withdraw liquidity – not by tapering, but by repo operations.  Watch this space.