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Volatility - Version 3.0



MARKETS ARE SET UP FOR ANOTHER FALL

 

Equity markets are setting up for their third bout of pronounced volatility in the past ten months as a confluence of factors form like storm clouds on the horizon.  Global macroeconomic concerns, domestic rate expectations and bearish technical indicators have been going concerns for several months; and while they're certainly not mutually exclusive, all three factors are now flashing red at the same time!


CHINA


The issue of China's slowing growth and mounting debt are nothing new...

http://tancockstradingblog.blogspot.com/2016/05/is-china-next-japan-continuing-case.html

However, China related stocks and ETFs had enjoyed a small relief rally... until recently that is.  Anything associated with the country is under fire again and not even huge investments from Apple can seem to save them.


THE DOLLAR


Similar to Chinese stocks, the dollar had recently reversed its own longer trend... it just so happened to be a bullish one.  However, the dollar's technical pattern has transitioned from a bearish breakdown, to a low basing consolidation and today it moved into a bullish breakout:


A stronger dollar is a direct threat to natural resources; namely, oil, which has enjoyed a respite from a long and steep run of free falling prices.  Renewed pressure amid energy related stocks would be yet another weight on a market that is struggling just to tread water.

http://tancockstradingblog.blogspot.com/2016/04/its-all-about-tubmans.html


LOWER HIGHS AND LOWER LOWS


Lastly, the market's long-term technical weakness is converging with short-term bearish signals.  Following last August's drop, the market failed to eclipse its' previous high (lower high).  It then proceeded to experience a second round of volatility in January where the lows breached the base put in by the August rout (lower low).  Similarly to last summer's selloff, January's volatility was also followed by a relief rally.  However, this past rally also failed to eclipse the previous high (lower high).


Now, the S&P is in its own breakdown pattern as prices begin to push below recent support levels.



Of course this does not mean that another systemic correction is guaranteed, but these signals certainly point to the increased likelihood of the market having another round of pressured selling in the near future.

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