Well .... that escalated quickly !!!

Morning all , this time last week i wrote about the risk to equities and in particular the frothy old FTSE 100 !

Last week was a shocker for global eq's and the FTSE indeed lagged pretty badly ... the $6bln question now though was this a head fake or is this just the beginning ...

No doubt the summer has/had bored out many if not all but the most stubborn of bears ... the BTD (Buy the Dip) gang have had it all their own way now for nearly a year now with no major (Over a week) follow through to the downside ... in short the dip buyers haven't felt any pain for long enough and with a thoroughly deluded short base all buying the dip now as well now i think we may be in serious trouble into year end !

Lets look quickly at the charts ..

Our favourite and our short position ... here in weekly form ... If anything this chart highlights just how much downside risk their really is ... The key here is the cluster of averages around 6500 .... a close through this level opens up my initial target of 5700 and maybe a lot more downside .... 

The Nasdaq 100 ...

Home of the tech giants , home of the froth , home of the hot money ... The most violent performer last Fri and will set the tone again this week ... The broken down trend line (A) is the key 4460/4450 this week ... A sharp down move may stall here for a bit but if this gives way on a closing basis i'm looking at sub 4k by year end ....

Lastly the king , the leader , the Dow ..

Of all the charts of all the major indices this is the most worrying ... Much column space was devoted in the past few weeks about Dow theory (Confirmation of Index highs by other related indices) and its usefulness or lack thereof in current times but strict students of the theory will be the first to tell you the recent industrials (DJIA) high was not confirmed by the Transports (DJT) and this was critical ... That aside the DJIA has broken back into the channel that has held it steady for over 2 years now and looks extremely vulnerable to more selling pressure ... 

In summary a very critical day today , especially for US stocks ... we'll see bounces i'm sure of that , the market has made too much money buying dips for it not to attract buyers but it really feels like we are going to test the nerve of these buyers ... a DJIA close below 18050 opens up a lot of downside ... sentiment is still very blase and that's the single most worrying thing to me ... I remain short my FTSE .. depending on closes and levels this week i intend to add shorts across all major indices and with vol (Albeit higher in the last 2 days) at very very low levels some Oct expiry way out the money downside looks a great investment ... 

Until next time ....

Please follow my twitter feed @contrarycalls for more updates .