Adam Hewison: Was Last Week’s Market Rally a Head Fake?

Last week, the equity markets rallied along with many other markets. We felt at the time this was a counter trend rally and with Monday’s action we have probably put in an interim top. We also expressed the feeling that professional traders would be selling against the recent highs around 1220 to 1230 basis the S&P 500 index.

The rally was pretty unusual in the fact that it was on very light volume and it took off to the upside very quickly without any kind of market consolidation.

This is going to be a big week! Are we going to continue going up? Or are we going to see the longer term downtrend kick in? A downside reversal could be quite dramatic. This also holds true for the crude oil market, which has been mirroring the US equity markets.

The problems in Europe remain and we see little reason to celebrate any victories on that front. Greece will eventually default, and it remains to be seen if Ireland, Spain and Italy will dodge a bullet.

Every week it seems we go from “the world is coming to an end” to euphoria. Eventually the markets will sort out this conundrum. Our view longer term remains with our Trade Triangle technology which remains negative on the equity markets indicating long term weakness.

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