Thursday, April 30, 2015

Trouble in Paradise- Stocks Poised for Collapse

Stocks closed just at or just below, a critical support trendline; the diagonal line defining the upward sloping wedge of the last 6 months.


 click to enlarge
 click to enlarge
As discussed in the April 4 post The Equities Problem
"the current 5th leg up can fail at any point. The diagonal wedge forming at the end of an extended move up...along with repeated negative divergence of the RSI over the last 2 years, presents a set up for a violent thrust down into a vacuum with few shorts left to cover in."
The wedge can also be seen as a upward sloping head and shoulders.
NASDAQ 100 Nearby
click to enlarge
 It doesn't take a genius to draw a trendline ...or to see when it is penetrated. 
Upward sloping wedges or diagonal 5th waves in this position, at the exhaustion stage of a 
relentless and prolonged rally, are rare and extremely bearish.

Unfortunately with every central bank and then some, at maximum easing, it's hard to imagine any effective intervention available from the monetary side once things get ugly.








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