As you may have noticed, the market has gotten somewhat, shall we say, wild. This broadening pattern (or megaphone) on the daily chart of the futures is the cause (click chart to enlarge):

This is considered a topping pattern, however these things can also turn out to behave like bull-flags.

In other words, be careful out there. The market appears to be winding up for a big move. One of those red lines will be tagged soon.

Note: the SPX has a similar pattern, but the one on the ES is better defined. The SPX isn’t open overnight, so it can only have a delayed reaction to events that occur when it is not open. So, I like using the ES chart better.

Keep an eye out for crows.

The SPX has made a double-top (red arrows) right at the first level in the Box of Beer, and then fell back down into the Box of Bulls (click chart to enlarge):

Back in August, the market made a top just below the second level of the Box of Bulls (blue arrow). It then proceeded to fall to the last level of the Box of Miracles (purple arrow) where it oscillated for a couple of days before rampaging 80-some points to the top of the Box of Bulls (green arrow).

If the SPX continues to fall on Thursday, there should be some sort of support around the last level of the Box of Bulls at 1068.11. That’s also the area to which a double-top breakdown would project.

The futures re-opened at 4:15pm on Tuesday down on a quarter-point gap: from 1089.25 to 1089.00. Eight hours of trading later, the gap was still un-filled. It might be nothing, or it might be the proverbial butterfly flapping its wings.

So, keep an eye on 1089.25; the bulls really need to rally the futures back up there. Otherwise, traders might be having bearish thoughts.

A few weeks ago when President Obama announced the tariffs on Chinese tires, Larry “Favela” Kudlow said that it was a bad policy because a trade war with China would jeopardize thousands of dock-worker jobs at the Port of Los Angeles.

But Kudlow has it backwards. Imagine what would happen if, instead of worrying about the dock-workers, you put a barbed-wire fence around the port and turned it into a maximum security prison. No ships could be unloaded, and no products could be imported from across the ocean.

How long would it be before Walmart’s shelves were bare? Eventually, they would have to break down and actually order products from American companies. And those companies would have to build more factories and hire more Americans to meet the increased demand. The American economy might actually start to work again for the average Joe instead of just the fat cats like Larry Kudlow’s clientele.

And make no mistake, Kudlow and his ilk no not want to see the factories brought back home. They do not want to see Detroiters building cars again. They most certainly do not want to see GM laying off 2-dollar-an-hour Mexicans and replacing them with 20-dollar-an-hour Americans.

That would cut profits by $18 per head, right? That would mean that the fat cats would have to cut back to only one private jet.

Brazil is the “B” in “BRIC”, and they have achieved that lofty status while riddled with favelas. The fact is that Corporate Amerika can thrive with mass unemployment in the USA. And that is the plan; it is official federal economic policy supported by both Republicans and Democrats.

But we won’t have Brazilian-style favelas here. Ironically, the moronic housing bubble that Alan Greenspan kicked off with his foolish low-interest policy during the last recession has given us a massive housing glut. So, there are plenty of vacant houses for the unemployed to squat in, and we don’t need to construct any new shanty towns.

But don’t think that favelas wouldn’t be welcomed, and approved of, here by the Kudlows of this nation.

Thank God for Alan Greenspan.

Note: one of the primary differences between a favela and a regular slum is that the favala has only footpaths and you can’t drive a car inside of them.