The Black Gold - We enter the week with some very light trade and markets mostly locked within tight consolidation ranges. Still, there have been some notable moves over the past several days, and it will be interesting to see how things play out with the latest bearish reversal in EUR/USD. The week ahead is stacked with a solid amount of event risk, highlighted by Fed speak, a European Central Bank rate decision, and Friday's US NFP report. Technically, Monday's early break below some key support at 1.3480 is significant, and should we manage a close below this level, we can expect to see a further depreciation in the rate towards 1.3000. While the Euro has now taken out its key support against the buck, the Pound is still contemplating such a break, with the market tracking just over some neckline support of a major double top. The neckline comes in at 1.5895, and a break could then open the door for a test of the 1.5500 area in the days ahead. Elsewhere, there has been a lot of excitement in the OIL market, with the commodity coming under some intense pressure of late and tracking deep in oversold territory on the daily chart. While I like the idea of picking some up, I am now looking for one more drop into the $93 area before doing so. Finally, US equities have been showing some signs of topping after establishing fresh record highs in the previous week, but we still have a long way to go before any legitimate confirmation here. Nevertheless, a Gravestone doji-like formation on the S&P weekly chart could actually offer the necessary catalyst for what I believe should be the start to a major correction in US and global equity markets.
No Added Value - Over the weekend a close friend of mine (he does not work in the financial markets) sent me a NY Times piece offering some warning signs from market strategists who feared risks of a market melt-up. While these strategists were bullish the market, they were also concerned that we could see an unhealthy acceleration of gains from current levels, that would ultimately compromise the current bull trend. I have two big problems with such views. 1) Is the current price action not already indicative of a market melt-up? We have already seen a relentless rally in stocks to fresh record highs, with no offers in site, despite what might otherwise be some disturbing fundamental developments that have forced the Fed to leave policy at emergency levels. 2) These strategists have been critical of a market that is overly bullish at present, showing no regard for anything that might otherwise dissuade further investment, but at the very same time, have perpetuated such behavior by saying they are also bullish and think the market still could go higher (melt-up). For me, I will be looking for an S&P break below 1740 this week to really get things going to the downside. I have already sold at 1755 as per my recommendation in the previous week and will only exit on a daily close above the current record high at 1779. But a break below 1740 should seal the deal and confirm medium-term topping. Let's see wha November brings.