The big news over the weekend is that Japan has moved back into recession. The country is a cautionary tale of what can happen when complacent central bankers/planners ignore dangerous asset bubbles and then assume that they can fix everything with stimulus spending, ultra-low rates and wallpapering the country with newly printed money. With GDP over 7% under the level in 1997, a debt at over 250% of GDP, and huge entrenched budged deficits the situation there looks hopeless without a major default to try to rescue an economy that arrogant and incompetent politicians and central planners/bankers have driven to ruin.
Fortunately nothing like that could ever happen in the developed economies of the west. :-)
Another day of grinding into a daily doji candle on Friday, making that the fourth doji close in a row and the fifth doji out of the last six daily candles. These candles are indecision candlesticks and show either consolidation or the topping process preceding a retracement. Given the stretched state of the market here I'm looking for retracement, though I'm doubtful about that retracement breaking below 2000. If SPX gets that far then the obvious target would be a test of middle band support, which closed at 1997 on Friday, up eight handles from the close on Thursday. SPX daily chart:
To get a retracement started SPX must first break below the 50 hour MA, which was strong support on both Thursday and Friday. If we see a decent break of that today (hourly close basis), then a retracement should be starting. SPX 60min chart:
In terms of a retracement target the H&S that I posted on Friday looks pretty good here and if the neckline breaks today the target would be in the 2013 area. SPX 5min chart:
I think the setup looks pretty good for a modest retracement today and I'm leaning short. Bigger picture though I'll be viewing this as a buyable dip and will be looking hard for the retracement low. I'll be posting any retracement pattern I identify on twitter.
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