US and Germany

My view on S&P 500 and DAX is similar to my view on OMXS30. We are not near a long term bottom, prices haven't even broken down out of the monthly Bollinger bands, and RSI are not nearly as oversold as in the 2003 and 2009 market bottoms, as I've market out below.

US markets are currently stronger than the European markets, I believe the S&P 500 could bounce before hitting the lower Bollinger band, around 1 040-1 090. DAX should put in a short term low near the lower Bollinger band, around 4 900-5 100. After this, I believe we could see a rally that could last several weeks, before we head lower again.

When monthly RSI reaches 20-30, then we could start looking for a long term bottom.

Update

As anticipated in last update in March, the market began a new upleg and reached new highs, in April. Then, after a couple of months of consolidation, prices started to drop sharply last week.

Let's have a look at the big picture. As illustrated below, the Swedish equity index OMXS30 is in a similar situation as in December, 2007. Prices then broke down out of the monthly Bollinger bands, and RSI (Relative Strength Index) reached the 45 level. As you can see, we have a similar sitiuatiuon now. In 2007, a bounce followed, then price dropped again, and reached a low when RSI reached the 30 level. Therefore, I believe we could see a short term bottom in the next two weeks, then a bounce up, before price fall again to reach the bottom of the triangle and RSI around 30, and price around 650 (depending on when it hits the bottom of the triangle).

Accordingly, I believe it's likely that we now are entering a global equity bear market, that could last 1-2 years, although at this point it's a bit too early for such an assumption.

Next upleg about to begin

The chart patterns from the previuos update are intact and prices have now also reached important support levels. I expect support to hold and the next upleg to begin early next week.

Correction over

Germany's DAX index reversed nicely in my target area of 7 400 - 7 450, and S&P 500 has also been correcting as expected.

However, I now believe the correction is over, the trend is still up and prices should continue higher.

DAX has formed a falling wedge pattern in an uptrend with positive momentum divergence, indicating the move lower is getting tired. I expect a breakout to the upside in the next few days.

S&P 500 has formed a symmetrical triangle (continuation pattern), I expect a breakout to the upside in the next few days.

Germany - DAX

Germany's DAX index (7 370) is approaching an important resistance level of 7 400 - 7 450 in the weekly charts. Price has now reached the top of trend channel and just below the upper weekly bollinger band, (currently at 7 430).

Look out for signs of a reversal and beginning of a short-term correction. The trend is still up.

S&P 500 - Correction postponed

S&P 500 reversed back on Monday and continued higher. Still there are signs that a correction is near.

Take a look at the April top below. RSI was as at a similar extreme level as now. Also, the two weekly candlesticks (red box) prior to the week the correction started in April, are identical to the two candlesticks we have right now.

Conclusion: There are signs in the charts that a correction is near. If the candlestick pattern from the April top will be repeated this time, then the correction should start next week, but this strong trend could continue higher until price reaches the top of the blue trend channel, before a correction starts. The trend remains up.

S&P 500

6 months have passed since I identified the start of this bull run in the global stock markets, (see previous posts).

I believe that Friday's reversal in the major U.S. stock indices was the beginning of a short term 6-9 % correction. It's likely it will be similar to the correction of last year, a drop to the area around the weekly 34 EMA around 1 200 on the S & P 500, as illustrated below. From there, the bull market will continue higher.