Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

CGTS DAILY FOR TUESDAY 18 AUGUST 2009: GLOBAL MARKETS -- WHERE ARE WE IN TERMS OF THIS SELL-OFF?

How bad will this decline be?  That is the only question most investors are grappling with at the moment.  Pictures tell us more than words do.  A major question going toward answering this is: can the U.S. Dollar really mount a rally here?  The dollar is TRYING to rally.  It has been building a base by turning its momentum back up for some time now.  I have shown how our M5 indicator (Momentum) is a leading indicator -- pointing the direction an issue is heading.  M5 suggest the UUP (Bullish US Dollar ETF) is heading up.  The UDN (Bearish US Dollar ETF) has, correspondingly, weakened in terms of momentum -- and seems poised for a fall.

What about the VIX, the CRB Volatility Index?  When this gains, the markets are supposed to fall.  How does it look?  It looks like we are bottoming.  Clearly the M5 Momentum Indicator is climbing, indicating a base-forming is happening.  We include 2 more charts of VIX, one from October 2006, when a similar configuration of a climbing M5 and a flat/declining price was occurring.  From October 2006, to March 2007, the VIX doubled in value.


UDN

VIX CurrentVIX a


Some people are still claiming that a disconnection has occurred between Asian, European and American markets and economies.  They insist on this for various reasons, some related to their own pocketbooks, some for more deeply psychological reasons.  Nearly every chart I looked at today was almost exactly the same in appearance, except the Shanghai Index, which is leading the decline.  I'm showing a picture of the DAX Index in Germany as it is representative of the global index decline we are seeing.  The Dax looks to be in for a substantial decline, probably testing March lows.

The SOXX, Semiconductor Index, is a similar picture, having lost momentum and beginning to take out trend support levels.

GDAXI

SOXX


One of our most accurate short-term 'predictors' of an issue's day-to-day movement is our M4 momentum indicator (which we have averaged over 3 durations, making it M4 average 3 terms).  This gives us very clear levels of oversold (above 90) and overbought (below 10).  In line with this indicator, the Dow Jones Industrial is about half-way through the first leg of its decline.  The Singapore Index, SSEC, is currently oversold, and should be (and is) trying to find a trading foundation.  This does not mean that the index will stop declining.  But it should pause here for a while and try to regain its senses.  The next support level is for the SSEC is 2722.22.  It should try to form a bottom around this level.

DJI M4 3 Avg