Head & Shoulders Knees & Toes

Before we begin our stock market analysis, consider this quote from Reuters on Italy:

Italy borrowing costs surge as euro crisis spreads

(Reuters) - The main measure of Italy's borrowing costs broke above 6 percent for the first time in 14 years before easing back on Tuesday as the euro zone's third largest economy was sucked into the bloc's debt crisis.

Italian 10-year yields at one stage soared more than 30 basis points on the day to leap above 6 percent -- the highest since 1997 -- getting closer to the 7 percent level most market players see as being unsustainable for Italy's borrowing costs given its huge debt pile.

The cost of insuring Italian debt against default also rose as prolonged efforts to agree a second bailout for Greece, where the crisis began, eroded investor confidence in policymakers' ability to hold the bloc together.

Analysts say confusion over the Italian government's deficit-cutting and fears it may be watered down by parliament are adding to investors' concerns and making the country an easy target for those looking to hedge against the sustainability of the euro.

"Basically we believe Italy is being used as a liquid proxy on a euro-break up view," Credit Suisse First Boston analysts said in a research note.

The European debt crisis never went away, it just took a short nap for a few months. Now it is rising from its slumber and about to haunt both the stock and bond markets as the following Head & Shoulder chart shows.

Note the left shoulder at 1345 followed by the head at 1370 which happens to be the 78.6 Fibo level, and the right shoulder at 1355.
The neckline is about 1260, which gives us a target of 1150 for the S&P once this corrective pattern plays out if this analysis is correct.

So the bears are coming back, in my view, and will give the bulls a sound thrashing over the next few weeks.


  1. Great post PW. Mean while the US humbles along $14.5T in the hole and the Red Team and Blue Teams play sand box fights with the US eCONomy. There is a larger objective here than the Debt Ceiling issue that is blatantly obvious.

    Our Markets are Glorious.

    Be well

    Bill :)

  2. Thanks for your comments Bill.

    I am away for a few days so we will keep our eyes on the markets then.

  3. 2011-07-15 — weissratings.com

    Weiss Ratings, an independent rating agency of U.S. financial institutions and sovereign debts, has downgraded the debt of the United States government from C to C-minus.

    The C-minus rating for the U.S. reflects a continued deterioration in the weaknesses cited in the Weiss Ratings release of April 28, 2011, including heavy debt burdens, shaky international stability, and poor economic health.

    Weiss Ratings senior financial analyst Gavin Magor commented: "Our downgrade today is not contingent on the outcome of the debt ceiling debate in Washington. It is driven exclusively by the numbers, which indicate that, in addition to a decline in the long-standing weaknesses we noted three months ago, the U.S. has already lost the golden halo that helped guarantee liquidity and acceptance of its government securities in global markets."

    On the Weiss Ratings scale, which ranges from A (excellent) to E (very weak), a C-minus

    http://weissratings.com/Login.aspx?a=r less

  4. You´re not counting on the POMO money which is still manipulating the markets. Like they did yesterday in the last hour.


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