Overlooked, again...

No Pulitzer prize for me, once again, this year, although I'm still available for nomination in the "Special Awards and Citations" category seen at this link.   ;-)

U.S., European & Chinese Financial Weakness

In my 2016 Market Forecast post of December 29, 2015, I mentioned three ratio charts worth monitoring for 2016.

They show the strength/weakness of the:

• XLF (U.S. Financials ETF) compared to $SPX
• EUFN (European Financials ETF) compared to $STOX50
• GXC (Chinese Financials ETF) compared to $SSEC

The following three updated Daily ratio charts show that U.S. and European financials are weak (and weakening) compared with their respective Major Index, so far, this year, while China's financials are also weak and mired in a long-term trading range, just above major support.

Even if U.S. equity markets do break out of their long-term high-basing trading range (as described in my last post), none of these three ratio charts fill me with much encouragement to project that such a rally could last very long if we see continued weakness, and, especially, a deterioration in these Financial ETFs compared with their Index.

A New Frontier Awaits For U.S. Markets

A new frontier awaits for U.S. equity markets to explore. They are fairing much better than other world markets, in spite of the Brexit uncertainty, and look poised to press upwards (likely choppily) for awhile, as shown on the 3-year comparison chart below of the SPX, World Market Index, and British Pound:USD Forex pair.

However, the closer we get to the U.S. Presidential election in November, we may see upward momentum begin to flatten out.

The World Market Index will, however, need to break through and hold above the 1600 major support/resistance level, once and for all (soon). If so, we could see such a breakout rally occur in the SPX -- possibly in a manner as I described in my post of July 1st.

Otherwise, if this index weakens, with sustained force, we may not see sufficient appetite for equity risk in the U.S. markets to push and sustain them to new heights.

Each candle on the ratio chart below of the SPX:VIX represents one year. (My latest post referencing this ratio, complete with updates, can be read here.) So far, the body of this year's candle is forming a bullish engulfing candle of the entire 2013, 2014 and 2015 candle bodies. As well, price closed above a major bull/bear line-in-the-sand resistance level of 150, once again, on Friday.

If we see price on this ratio hold above 150, we'll likely see the above scenario play out for U.S. equities. And, currently, momentum is favouring the bulls (albeit cautiously), as shown at this link to a Year-to-date graph showing gains/losses for the 9 Major U.S. Sectors. I'd keep a close eye on the Financials ETF to see if they suddenly weaken relative to the others, especially if banks in Europe begin to fail. If so, I believe this would negatively impact the rest of the U.S. markets.

Central Bank-Speak Is Not Logical, Sir...

...what Mr. Spock would say to Captain Kirk if Star Trek, The Stock Markets had been a fictional TV series.

However, what we're dealing with is fact...weird or what?

20-Year Monthly chart of SPX

Possible 2016 U.S. Presidential Election Target for the SPX

Each candle on the SPX chart below represents 1/4 of one year. 

Further to my post of June 27th, and, as shown on the following updated 20-Year Quarterly chart of the SPX, the 2016 Q2 candle closed today at a higher level than -- on what was a previously potential bearish hanging man -- the Q1 candle. This bearish reversal warning was not confirmed.

Instead, what we're left with, at the moment, is a wide-range high-base consolidation for the past 6 quarters, with price now near all-time highs.

As shown on the following 20-Year Monthly chart of the SPX, a solid breakout and hold to the upside of this large range could produce a rally to a confluence of the top of a long-term channel and a 200% Fibonacci Extension level of 2280 (yellow) by roughly October of this year, and, eventually, another confluence of the channel top and a 200% External Fibonacci level of 2485 (blue) by approximately December 2017.

That's a very bullish scenario and one that may take quite a bit longer to play out, with, possibly, a lot more volatility sprinkled into the mix than what I've shown...anything can happen between now and then, but the potential is there, nonetheless.