We are at an important juncture for risk assets

S&P500 is in the triangle. As a “picture of doubt” triangles can go either way. Currently many analysts think it is a consolidation pattern and if it proves to be such, then a min upside target would be 88ppts (width of the triangle) following the triangle breakout and the max target would be the pole of the triangle which is approximately 198 points. Also, cycles are in favour of the upside move: Q4s are mostly bullish.

However, other markets do not appear as bullish as S&P500. Therefore, we have to be prepared to the downside risk in case bullish S&P plans do not pan out.

German DAX30 is in a bearish descending triangle. The width of this triangle is approximately 675pts and a downside breakout gives a min target of 5062. Oil WTI is in a bearish rising wedge and is approaching a major resistance at $100 (Jul 25^th high). UK’s FTSE100 is being supported by an uptrend line and it looks rather precarious.  A daily close 5350 will confirm that we are heading back to 4900/5000 area.  If these divergences are a harbinger of things to come, then S&P500 is likely to break the triangle on the downside and 88pts down is a reasonable target level. Daily close below 1220 will confirm the downside.  So beware.

Finally, HY credit is not looking as bullish as S&P500 does. Two charts below compare HY Spread (HY credit yield minus US 10Yr yield) to S&P500. HY credit spread made a higher high (bearish) at the end of last May, two months before S&P confirmed H&S pattern. This is as good advance warning as one can wish for.

Now, HY spreads are going up again while S&P is holding steady. Credit may be panicking too much but i think it is panicking for a reason. So, beware of the downside risk.

Gold and particularly silver are also at important junctures. So, we will just wait for the breakouts