Thursday’s drop in Equities into Europe’s close proved far more decisive in steering the short-term direction to more bearish than what markets showed in recent days and both SPX and QQQ violated recent consolidation lows on Thursday. The key catalyst revolved around the ECB’s hawkishness and specifically Lagarde, who warned that “We Will Not Pivot” Peripheral rates spiked, and this directly coincided with both Eurozone and US Stocks turning down sharply. Overall, today’s decline gives more proof of upcoming consolidation in Equities over the next week, but believe that Eurozone stocks likely could be more negative than US and should underperform on a pullback. Near-term, this break of 3900 is a negative, and could drive SPX down to near 3700 on weakness.
80-day cycle for SPX likely points down into January
The strongest cycle this year revolves around the 80-day trading day cycle for SPX. This has pinpointed most of the highs and lows this year and suggests that markets are peaking out now and should fall into January, followed by a spike into mid-February.
This cycle below involves simply the 80-day, not the composite which I typically like to share. Yet, the strength of this cycle means that until proven otherwise, near-term trends should be turning lower, bringing out a far more “choppy” December than what seasonality would normally suggest.
Specifically, Thursday’s decline under SPX 3900 and under QQQ-278.78 (the lows from 12/7) means this neutral consolidation of the last month is now turning bearish in the short run.
While my cycle composite overall does suggest lows could be at hand near 12/21-23rd, I believe the path of least resistance in the short run, has turned bearish, specifically confirmed by Thursday’s decline.
Eurozone likely shows more weakness than US in the near-term
Lagarde’s hawkish comments Thursday directly caused peripheral rates to spike sharply on Thursday, resulting in a move down to multi-day lows for popular Eurozone ETF”s like FEZ, the EuroSTOXX 50 ETF>
The Symbolik chart below shows the presence of daily TD Combo and TD Sequential 13 countdown “Sells” which are being confirmed on Thursday’s close.
Near-term, I’m bearish on Europe, and expect FEZ drops to $37, and underneath to $35.69. Europe also likely underperforms US, as I’ll show in charts later in this report.
Europe vs SPX also showing signs of stalling out after two months of outperformance
This ratio chart of EZU vs SPY, (Ishares MSCI Eurozone ETF vs the S&P 500 ETF) is now showing daily and weekly exhaustion signals using DeMark’s TD Sequential and TD Combo indicators.
This likely leads Europe to underperform in the weeks and months to come after a sharp period of outperformance out of the Eurozone.
For those betting on markets moving lower, Eurozone likely should underperform US stocks, meaning EZU and/or FEZ could pullback at a faster rate between now and early next year.
European Peripheral rates turning up are leading rates up globally
Italy’s 10-Year yields spiked up more than 20 bps. After the ECB meeting Thursday. As can be seen below, this has exceeded prior lows, making this a 3-wave decline only.
Thus, a rally back to new highs is very possible for Italian “10’s and German bund yields seem to be following suit.
As I mentioned earlier this week, US rates look to have stabilized and should be starting to turn higher. However, I believe Europe is setting the tone for this move and is taking the lead.
