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Global Risk Update

Courtesy of Tyler Durden

By Nic Lenoir Of ICAP

We broadly expected follow through weakness, simply because the pattern yesterday was defintiely not complete, and investors having not trimmed long positions yesterday probably needed to take some chips off the table before the weekend. We also failed to violate the resistance in S&P futures at 1,135.

Interestingly we see on the Nasdaq and the Dow charts daily that we may have put an intermediary low yesterday. Both seem set-up for a potential rebound. On the Dax on a rebound we would use the 100-dma as a resistance to sell again. The Dax has broken the equivalent support observed in CAC that was broken a few days ago. The key support below is 5,450. If we got test it US equities should see a bit of pressure but again from the Dow and Nasdaq charts it seems the lows of Thursday should hold for now. We have interesting potential H&S formation for both the Dow and Nasdaq, with targets on the second shoulder tops around 10,800 and 1,990. Should we bounce back to those levels we will be looking at fresh short recommendations. We have a very similar formation on the Bovespa where our target on the downside at 61,450 was reached (we initiated short recommendation at 71.500). We could easily see the market rebound from these levels.

We added the Vix chart which allowed us to pin the lows in Volatility and forecast the top for the S&P future. The chart is still resolutely bullishfor Vol, but the first decent support is 27 and in fact we could pull back to 20.4 and still remain in a bullish dynamic, so we would advise taking chips off the table for those who followed us, but keep a small position.

Treasuries also seem to be consolidating here and the panic bid may abate for a few days after near record volumes observed in the last couple days. We see support at 118-28 which corresponds both to channel support and the wave 4 of lower order. Keep a close eye on the support if risk aversion dissipates.

The only trend that seems unlikely to abate at this point is Gold’s bullish trend. We seem to be set to take out the highs and further accelerate from here. The only danger to the trend is a wave of defaults which would be massively deflationary in theory, but at this points it is unlikely politicians will let that happen. They will only make everyone wait painfully to come up to the obvious conclusion that they will bend and provide the liquidity needed and thereby cause damage to the system.

Good luck trading and have a good weekend,



Nic


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