The World Markets Teeter Ahead Of Greek Vote

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 |  Includes: DIA, SPY
by: Bill L.

Bottom Line:

The head and shoulders pattern mentioned Wednesday failed to complete (did not break neckline), the markets rallied and volatility spiked with news of possible coordinated action by central banks. Elections are being held this weekend (Sunday) which could have big ramifications for the market Monday morning.

In situations like this, where a large percentage of the indicators I follow are not lined up, meaning there's a lack of clarity, and there's a big news event they could move markets either direction looming, I think it's best at this point to simply sit on the sidelines and see what plays out.

So while there's currently no high probability trade to make, as far as I can see, I might as well use the time to discuss some of the other things I'm seeing in the market, namely the long-term non confirmations that I've been mentioning in previous articles and blogs.

Greek Election Preview:

Greek elections will be held on Sunday, my best guess is that the New Democracy party will win, but will fail to reach the 151 majority needed to form a coalition. Without a majority, the pro bailout/pro austerity party will have to convince others that austerity is in the best interest for Greece. No small task, since any moderates willing to work with the pro austerity party will essentially be signing their own political death warrant.

The song and dance continues.

Intrade: Probability of New Democracy Win = 70%:

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This still does not guarantee that an agreement on austerity will be reached. Does the can meet the end of the road this month?

Long Term Trend Model:

As I've mentioned, my long-term trend model (looking at monthly closes) on the S&P is currently signaling a bull market, however I think there are some major issues with the signal. Most of the other world indexes, as well as the NYSE and AMEX composites are not confirming the breakout.

My long-term trend model assumptions: once price direction has reversed by a certain amount and it crosses either the top or bottom bounds of the trading bands, prices will continue to trend in that direction long enough that a position assumed on that date will be profitable before the signal reverses. These signals can be improved by watching the long term indicators mentioned in my previous article here.

1) S&P Current Signal: Bull Market:

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Notes: The previous bear market signal was reversed in February when we closed above the top bounds of the trading bands. This would be the first false signals since 1994.

Furthermore, On Balance Volume:

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Notes: The divergence seen in the "on balance volume" indicator means that more volume is being traded on the down days when compared to the up days.

2) NYSE Composite Current Signal: Bear Market, Non Confirmation:

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Notes: unlike the S&P, the NYSE does not benefit from the meteoric rise of Apple (NASDAQ:AAPL). As we can see, while price has rebounded it is still within the bands and still in a bear market sell signal.

3) AMEX Composite Current Signal: Bear Market, Non Confirmation:

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Notes: the AMEX composite had also risen above the top bounds of the trading bands, however it failed to take out the previous high and has subsequently fallen below the trading bands again, activating another bear market signal. I would say that the signal is actually more reliable because prices failed to take out the previous high, indicating buyer exhaustion.

4) Europe Current Signal: Bear Market, Non Confirmation, H&S Pattern:

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Notes: Unsurprisingly, Europe has fared worse, the recovery has been smaller, there is a head and shoulders pattern, the current signal is a bear market sell signal, and we're close to breaking the neckline.

5) Central Europe Current Signal: Bear Market, Non Confirmation, H&S Pattern:

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Notes: Central Europe and Russia have also been faring worse recently. While the recovery was stronger (percentage wise) compared to the S&P, now there is currently a bear market signal, a non confirmation when compared to the new price high of the S&P, and possibly a head and shoulders pattern.

6) Australia Current Signal: Bear Market, Non Confirmation, H&S Pattern:

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Notes: Things have not fared much better in the land down under. Similarly, prices have fallen beneath the lower bounds of the trading bands indicating a bear market. The most recent rally has failed to match the new price high in the S&P, or even the previous two peaks for that matter. Lastly there appears to be a head and shoulders pattern forming, and is close to breaking the neckline.

7) Emerging Markets Current Signal: Bear Market, Non Confirmation, H&S Pattern:

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Notes: we can see the same similar pattern in the emerging markets as well; a non confirmation high, a bear market signal, and a nearly complete head and shoulders pattern.

8) Brazil Current Signal: Bear Market, Non Confirmation:

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Notes: this chart also looks the same (maybe without the head and shoulders), a non confirmation high, failure to break above the previous price high, and the bear market signal.

9) India Current Signal: Bear Market, Non Confirmation:

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Notes: India not only displays the same non confirmation in price action, but has given back approximately 60% of the recovery since the 2009 lows.

10) China Current Signal: Bear Market, Non Confirmation:

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Notes: China has also produced a bearish non confirmation in price, and has been incapable of overtaking the previous price high. It currently resides beneath the lower bounds of the trading bands, firmly in bear market mode.

11) Japan Current Signal: Bear Market, Non Confirmation, H&S Pattern:

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Notes: Japan resembles many of the other markets mentioned above; there's a bearish non confirmation and price, price is currently below the lower bounds of the trading bands indicating a bear market, and there's a head and shoulders pattern, one that could arguably be considered complete.

Summary:

In my previous article I mentioned that many of the other indexes around the world simply do not confirm the price action in the S&P. The S&P seems to be the only index that has been able to firmly break above its previous high and reverse its bear market signal. Even the bull market signal in the S&P has failed to be confirmed with many technical indicators that I follow such as on balance volume.

Central banks have been posturing and hinting that there could be some sort of coordinated action. However, with seemingly every major market teetering on the brink of being a bear market, one wonders if it will be enough, and how long can the S&P rise with every other major market in serious trouble.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.