Stock Market Is In The Danger Zone – Risk of 1998-style Asian Crisis, Retail Gas Prices, Major Bank Slashed US GDP Forecasts, Apple Reports Lower Profit

The S&P 500 moves into the danger zone

Well, this past week, we saw the AAII Investor Sentiment registering only 17.6% bearishness, whereas the long-term average is 30.5%. Furthermore, we may be seeing evidence that the Russell 2000 and the financials, represented here by the Select Sector SPDR-FinancialXLF -0.10% , the former market leaders, may have begun to lag in this next move higher.

Furthermore, the divergences I am seeing in our daily and weekly S&P 500 charts are becoming more pronounced. Lastly, I am unable to get past the striking support that the weekly slow stochastics have given to this rally from 2011 being a large diagonal. That makes this top a very dangerous one, indeed, which will see a very strong reversal which will likely catch most market participants by surprise.

Based upon where we topped this past week, I had to slightly adjust our Fibonacci Pinball calculations. Since we often top at the 1.236 extension of waves 1 and 2 for wave iii of 3, I had to adjust my placement for wave 2, after Garrett Patten (a new MarketWatch contributor) pointed this out to me. So, our next higher target in the E-mini S&P 500 futures ESZ3 -0.11%  is the 1763 region (1.382 extension) up toward the 1776ES region (1.618 extension). These are the traditional targets for a 3rd wave.

If the market is able to move into this region over the coming week, I would strongly suggest selling longs and moving to the sidelines….

BIS sees risk of 1998-style Asian crisis as Chinese dollar debt soars

The world’s banking watchdog warns that foreign loans to companies and banks in China has tripled over the last five years and may be large enough to set off financial tremors in the West

Retail gas prices hit lowest level of 2013: AAA

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Apple reports lower profit, but tops analyst targets

SocGen Becomes Second Major Bank To Slash US GDP Forecasts

Société Générale economists Aneta Markowska and Brian Jones are slashing the bank’s forecasts for Q3 and Q4 2013 U.S. GDP growth, citing the effects of the government shutdown that spanned the first two weeks of October.

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A Whole Bunch Of Wall Street’s Top Strategists Have Downshifted Their Views On Stocks

The stock market closed at a fresh all-time high today.


And some investors are understandably nervous about what’s next.

For the most part, the experts aren’t recommending dumping stocks.

However, at least four of Wall Street’s top strategists have reduced their bullish positions to something much more neutral.

“U.S. equities have gained 25% year to date and the S&P 500 is above 1750, which is the outer end of the range we estimated at the start of the year,” said Nuveen Asset Management’s Bob Doll. “We believe the risk-reward tradeoff has become more neutral.”

“Our view is S&P 500 trades at fair value and the forward path of the index will follow the trajectory of profit growth,” said Goldman Sachs’ David Kostin in a new note to clients.
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