Bull Trap?
Most market participants considered QE3 a game changer. With the Fed printing money forever, the bullish crowd somehow determined that nothing could go wrong. Ooops!! Someone yelled “breakout” as the SP500 moved to new cyclical highs, but it appears what they meant to say was “get out” leaving investors to wonder if the announcement of QE3 has led to a bull trap. See figure 1 a weekly chart of the SP500.
Figure 1. SP500/ weekly
The breakout above the rising trend line is easy to see, and this breakout appears to be turning into this week’s fake out as prices fall back into the trend channel. Failing breakouts are never good. I would look for support at SP500 1408. As stated two weeks ago: “Breakouts also imply game changer as well as prices have moved into new, uncharted territory. A break out must “stick”. In other words, if this turns into a failed breakout, then it is look out below especially since the Fed has been taken out of the picture. After all, it is not like investors will be asking for more QE anytime soon. “
Category: Equities
Interestingly enough, I have just begun considering the possibility that, forming off early October 2011 bottom is a “rising wedge,” this developing in accordance with rules and guidelines put forward in the Elliott Wave Principle. Yet, although near-term weakness is expected here, too, breakdown following a “bull trap” (which I believe characterizes the market’s entire rally off March ’09 bottom) might not develop for some weeks yet.