Looks like ALL of the markets (domestic stocks, global stocks, commodities) are getting set for a major leg down and here is why:
1) Since the January 22nd low, the stock market has been consolidating sideways in a very narrow pennant-shaped range. Usually a pennant formation is resolved in the direction of the trend, in this case down.
2) The Volatility index has declined since the January low, but it made a higher low and is beginning to rise again. Put sellers have been saved time and again these past four years, by V-Shaped recovery rallies, so they are highly conditioned to sell volatility into every decline. It's only a matter of time before this clueless cohort blow themselves up...
3) Oil, gold and commodities in general, appear to be in blowoff mode. Gold has risen 7 of the last 8 days and is now at $975/ounce. The charts of all commodities have gone parabolic...
4) Complaceny reigns: There appear to be few if any commentators looking for a major decline from here. The most bearish commentators are calling for a successful "retest" of the January lows.
5) The Euro has broken out to a major new high 1.52 vs. the dollar today, but similar to gold, the Euro move appears to be exhaustive, rather than breakaway. Likewise, the "dumb" money has been feeding at the Euro trough a little bit too long for this to be a lasting move...
6) Financial stocks started to break down again today on heavy volume. They led the way down in January, and most likely will lead the next leg down.
7) Treauries have caught a major reversal bid on very heavy volume in the past 3 days, indicating a flight to safety
8) The news flow this week has been unbelievably awful:
i) Decades' high inflation
ii) Rising unemployment claims
iii) Home prices falling by greatest percentage since 1930s depression
iv) Accelerating liquidity crisis in the debt markets, spreading to new asset classes
So far the market has weathered this perfect storm of bad data, but it likely wouldn't take much more to see things come really unglued...
