The Most Important Chart Right Now
“If the U.S. defaults, there would be massive consequences,” El-Erian said yesterday from Pimco’s headquarters in Newport Beach, California. “People are concerned, but they sort of think it’s a very, very low probability, and we would agree.”
Treasury Secretary Timothy F. Geithner has said the U.S. will run out of options to prevent a default unless the $14.3 trillion borrowing limit is increased by Aug. 2. Standard & Poor’s, which has given the U.S. a top ranking since 1941, reiterated on July 21 that the chance of a downgrade is 50 percent in the next three months and may cut the nation as soon as August if there isn’t a “credible” plan to reduce the nation’s deficit
I woke up with a bad head cold, which means that this post will have to be on the abbreviated side. The first thing I saw as I examined my quote board was September gold squirting to a record high of 1629.30. But a few hours later gold had settled to 1619.40, up just 1.90 to 1628.70, still a new record if it can close here. The news out of Washington and the political and emotional swings are coming through so rapidly and so violently, that the market action is acting like one of the "jitter-bug" dancers of the 1950s.
If there's any hint of the trend, my PTI is heading down and bullish by only 16 points as of yesterday. But Lowry's, with a 78-year history of daily statistics sticks to their opinion that no market top has been seen with their Selling Pressure Index probing new lows for the move. Furthermore, they are impressed by the new highs in various advance-decline metrics.
In desperation, I ask the question, can charts tell us where we are and what may be coming up?
The daily chart below of the Wilshire 5000 has carved out a discernible potential head-and-shoulders top. The horizontal blue line shows where the support is. I suggest that this is the most important chart we are now dealing with. If the right shoulder can avoid breaking support it will have bullish implications. But if the pattern is completed and the right shoulder of this head-and-shoulders pattern breaks down, then the market will have delivered its sternest warning.
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