By Graham Summers
Last week’s moves were entirely based on the fact that stocks are now tracking the Euro almost tick for tick. And last week, the Euro hit “take off,” despite the clear indications that Europe is facing systemic failure (the entire banking system is leveraged at Lehman-like levels and European sovereigns are facing failed bond auctions on a weekly basis).
Click charts to enlarge
From a technical standpoint, stocks are now coming up against the 50% retracement level:
I mentioned that last week could be a potential top. I still hold that view and would consider anywhere between today’s levels and 1,250 (MAJOR resistance) to be a spot to lighten up on longs and establish shorts.
Indeed, deflation looks to be the dominate theme in the markets today. Gold is having trouble catching a bid:
While Treasuries are bouncing off support and look ready to start a new leg up:
Inflation hedges falling, Treasuries rallying… this is a deflationary backdrop. And it’s occurring at a time when the EU is talking about launching a leveraged version of the EFSF and the Fed has hinted at launching another version of QE 1?
Folks, something very bad is brewing behind the scenes. The Sarkozy-Merkel talks, the short-selling bans, the halted stocks, the leveraged EFSF, the hints of QE 3, all of this is telling us that the financial system is on DEFCON 1 Red Alert.
Ignore stocks, they’re always the last to “get it.” The credit markets are jamming up just like they did in 2008. The banking system is flashing all the same signals as well.
So if you have not already taken steps to prepare for systemic failure, youneed to do so now. We’re literally at most a few months, and very likely just a few weeks, from Europe’s banks imploding.