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Citi: No Big Meltdown, Just a “Cleansing” Correction at Trader’s Narrative

A recent research report from CitiFX Technicals argues that this is a healthy correction for the equity markets and not the start of a “big meltdown”. Citi foresees a possible move all the way to the 200 day moving average which is at approximately 1100 on the S&P 500 index. But they also note that:

…on every reasonable deep correction since August ranging from a low of 20 points to a high of 71 points the low has been put in when the S&P posts 2 consecutive up closes. This likely comes from an underlying bullish overview and fear of getting left behind that sees new buying once it looks to be stabilising. This will not work forever but has been a good guide in the last 5 to 6 months. The S&P had a good up close yesterday and if followed with an up close today it could suggest a similar dynamic at play.

On a weekly basis, the S&P 500 put in the first reversal since the March 2009 low. A weekly reversal is when the index first climbs to a higher high than the prior week, then follows it with a lower low and finally closes below the prior week’s low:

CitiFX weekly reversal S&P500 index Jan 2010

On a monthly basis, the close below 1085 on the S&P 500 also gave us a monthly reversal. That is something we haven’t seen in a while. The last time it was a warning signal that came in July 2007 in advance of the impending top in October 2007. There’s much more in the full report, including their continued “Spooky Chart” which compares the current market to the aftermath of the 1929 crash. As well as analysis of emerging markets, fixed income, commodities and forex.

Elliott Wave International have just announced the beginning of their popular FreeWeek event, where they’ve thrown open the doors to some of their most popular paid services to non-subscribers for one week only. You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10. Take advantage of FreeWeek by signing up here.

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