The Sgima Whole Market Index printed an inside day on Thursday and this market doesn't give any warning sign at this time. So impressive. Thursday's session was an inside day and we are close to a major (horizontal) support.

Once again, everything will depend on 'one number' (payrolls). Be ready for high volatility on Friday.

Looking at the EuroStoxx, the market slightly rebounded in early session on Thursday. Thereafter, it declined on a straight line to its next horizontal support. If this support doesn't hold on, the next target is 2870.

Looking at our indicators, the Sigma Trend Index slightly declined below its zero line. Other indicators remain neutral at '3'. It is interesting to notice the market closed in negative territory for its 5th consecutive session but each decline was very limited. So, we can't say there is any impulse at this time.

The ST model computed new stop levels for both the CAC and the EuroStoxx.

Short Term Trading Book:

- SPX: short at 1792.26 (stop @ 1827, 3pts above the ST model to take into account bid/ask spread)

- NDX: stopped

- CAC: short at 4272.14 (stop @ 4332, 5pts above the ST model to take into account bid/ask spread)

- DAX: stopped

- EStoxx: short at 3027.17 (stop @ 3062, 5pts above the ST model to take into account bid/ask spread)

Medium Term Trading Book:

- No more medium term position at this stage.

Out of model position:

- 1 call NDX January 2014 strike 3700 @ 5.06

Today, we want to start our charts review with Europe. Tuesday's session made a lot of damages to the EuroStoxx and the CAC. The Dax also broke an important uptrend but its momentum remains strong.

Once again, the CAC looks like the weakest one, and the perfect candidate to short.

Looking at the Sigma Whole Market Index, we can notice current decline is very modest and looks more like a consolidation rather than the start of a decline. There is no sign of (negative) impulse at this time.

But the Sigma Smart Money Index continues to deteriorate much faster than the Sigma Whole Market Index, telling us smart investors are reducing their exposure to the market.

Looking at our indicators, the Sigma trend Index is at '3', other indicators are neutral. It is interesting to notice that we got 2 sets of 3 consecutive negative sessions in a very short time. That hasn't occured for a long time and could be the first sign of a weakening market.

The ST model computed new stop levels for both the CAC and the Eurostoxx:

Short Term Trading Book:

- SPX: short at 1792.26 (stop @ 1827, 3pts above the ST model to take into account bid/ask spread)

- NDX: stopped

- CAC: short at 4272.14 (stop @ 4385, 5pts above the ST model to take into account bid/ask spread)

- DAX: stopped

- EStoxx: short at 3027.17 (stop @ 3103, 5pts above the ST model to take into account bid/ask spread)

Medium Term Trading Book:

- No more medium term position at this stage.

Out of model position:

- 1 call NDX January 2014 strike 3700 @ 5.06

The Sigma Whole Market Index continues to climb, day after day, week after week. I knwo a lot of investors don't share my opinion, but for me there is no doubt, we are in the late stage of a bubble powered by the Fed easy money policy and this will end very badly. How long can it last before we reach the top? I really don't know. But at this stage in the bubble, we will probably continue to accelerate in an asymptotic move until we hit the wall like we did in 2000 (for those of you interested in this subject, I added a youtube's link in Thursday's daily comments).

We can notice on the Sigma Whole Market index (weekly) chart that we are not far from an important resistance (pink line, =~2.5% upside from current levels). It will be interesting to see if this level act as a resistance (at least short term) or if the market continues to accelerate when it reaches this level.

Looking at the Sigma Smart Money Index (blue line), it is interesting to notice that current top remains below 2007's top. So, the negative divergences between the Sigma Whole Market Index and the Sigma Smart Money Index are very important because we have divegences on both short term and medium term.

Sigma Smart Money Index = log (Sigma Whole Market Index / Vix ^2)

Looking at the Sigma Whole Market Index on a daily basis, the situation is rougly the same than on the weekly chart; the next resistance is roughly 2% above Friday's close. Looking at the chart, it is clear we are in an acceleration phase: trend channel are steeper and steeper. We wouldn't be surprised to see further acceleration in the short momentum.

The end of last week made a lot of damages in our book: we were stop on 2 short positions (NDX & DAX). We want to continue to test our model (even in a bubble period) but at this time we are close to roll in negative P&L for H2. In this context, we decided to cover our book against a bubble blow off  by buying a  January Call on the NDX (strike 3700) @ 5.06.

NDX: 1 short @ 3361.01, stopped @ 3475.13 => -144.12 pts (loss)

DAX: 1 short @ 9193.36, Stopped @ 9379.17 => -185.81 pts (loss)

As we hit several stops in recent weeks, we believe it is interesting to summarize our P&L since we started to test current model (in early may 2013). To make it simple, we are booking big gains on both the CAC & NDX, we are roughly flat on both the SPX & EuroStoxx and we have big losses on the DAX.

Short Term Trading Book:

- SPX: short at 1792.26 (stop @ 1827, 3pts above the ST model to take into account bid/ask spread)

- NDX: stopped

- CAC: short at 4272.14 (stop @ 4423, 5pts above the ST model to take into account bid/ask spread)

- DAX: stopped

- EStoxx: short at 3027.17 (stop @ 3105, 5pts above the ST model to take into account bid/ask spread)

Medium Term Trading Book:

- No more medium term position at this stage.

Out of model position:

- 1 call NDX January 2014 strike 3700 @ 5.06

Two days ago we wrote:

"...The market is so strong we don't believe in the double top scenario at this stage. So, we believe an extansion to 1.618x wave one is possible. => it remains 0.8% upside in this scenario. This would imply a target around 1818 for the SPX and 3449 for the NDX...."

On Wednesday, the NDX reached our target but the SPX didn't. Nevertheless, the "reversal" we had in the last hour of trading is rather interesting. If we get some follow up of this reversal in the next two sessions, a ST top will be confirmed. 

It is also interesting to notice that in previous uplegs, when we got a breakout of the green downtrends, the market didn't retest those trendlines. In the last upleg, the market retested this resistance. Is it the sign the market is weakening, we will get the answer in coming days.

The negative divergence between the Sigma Whole Market Index and the Sigma Smart Money Index is still in place.

There is no change in our indicators.

Short Term Trading Book:

- SPX: 1 short at 1792.26 (stop @ 1827, 3pts above the ST model to take into account bid/ask spread)

- NDX: 1 short at 3361.01 (stop @ 3475, 5pts above the ST model to take into account bid/ask spread)

- CAC: 1 short at 4272.14 (stop @ 4423, 5pts above the ST model to take into account bid/ask spread)

- DAX:  1 short at 9193.36 (stop @ 9379, 10pts above the ST model to take into account bid/ask spread)

- EStoxx: 1 short at 3027.17 (stop @ 3105, 5pts above the ST model to take into account bid/ask spread)

Medium Term Trading Book:

- No more medium term position at this stage.

When we look at the chart of the Sigma Whole Market Index, we can easily identify a 5 waves pattern in current up leg (pink lines). For the time being, the 5th wave is still below the top of the 3rd wave and current length is 32pts for the 1st wave and 31pts for the 5th wave.

The market is so strong we don't believe in the double top scenario at this stage. So, we believe an extansion to 1.618x wave one is possible. => it remains 0.8% upside in this scenario. This would imply a target around 1818 for the SPX and 3449 for the NDX.

The Sigma trend Index rose to 27, other indicators are neutral (at '3'):

Short Term Trading Book:

- SPX: 1 short at 1792.26 (stop @ 1827, 3pts above the ST model to take into account bid/ask spread)

- NDX: 1 short at 3361.01 (stop @ 3475, 5pts above the ST model to take into account bid/ask spread)

- CAC: 1 short at 4272.14 (stop @ 4423, 5pts above the ST model to take into account bid/ask spread)

- DAX:  1 short at 9193.36 (stop @ 9379, 10pts above the ST model to take into account bid/ask spread)

- EStoxx: 1 short at 3027.17 (stop @ 3105, 5pts above the ST model to take into account bid/ask spread)

Medium Term Trading Book:

- No more medium term position at this stage.