ORIGINAL POST: 0930
The dollar and EURUSD have both reached short-term extremes and should bounce back strongly — if not today then very soon. Here’s the action as of the NFP print:
And, here’s DX’s action since then — falling out of the channel it’s been in since July 6. Does the dismal NFP report guarantee QE3? The market is certainly acting like it. Perhaps a case of buying the rumor, selling the news?
SPX is also very overextended, with the 60-min RSI nearing a critical overbought level. Note the market’s reaction each time RSI tagged the highest TL (red, dashed.)
If it is expanding to a new channel (red, dashed) to the right (chart below) it is obviously very overdue for a back test of the previous one. Such a move would potentially take it to the 1.2933 level in mid-October — the .618 of the move down from 1.3485 in February.
UPDATE: 11:00 AM
Just saw an interesting blurb from Dow Jones. Over the past 28 years, the August NFP stats have missed expectations 3/4 of the time. For the past 10 years, the average adjustment after the fact is 62K. I imagine the Fed is also aware of these statistics.
What would happen to this market if the Fed didn’t pull the QE3 trigger next week? Or, how about a “Nein!” to ESM from the German Constitutional Court? To my eyes, QE is very much baked into the dollar, the euro and the stock markets.
More in a few.
A reminder, EURUSD is still back testing a 12 year old channel line. It might get all the way there, and then again, it might not. The diagonal purple trend line that cuts through the 1.272/.618 Fib lines dates back to the all-time low (.8227 in Oct 2000) for the pair.
Zooming in, we can see the recent channel action a little better. If we measure the quick drops by adding the purple channels, we can see that this drop has already taken longer than the last two.
The pair went from its high to its low in only six months in 2008, bounced hard, and made another higher low five months after that. Total time for the move: 11 months. In 2009, it took only 7 months from the high to the low. This time, we’re still working down from the high in May 2011 — 14 months so far.
Why? The two previous drops benefited from a flight to safety (the dollar) that wasn’t hampered by $16 trillion in debt. As bad as things are for the euro, the dollar is determined to give it a run for its money. Whether we reach 1.10-1.12 or not will depend completely on the dollar’s ability to remain the cleanest shirt in the hamper/tallest jockey in the stable/most honest politician in the race.
More in a few.
UPDATE: 1:50 PM
I’m not an EW fan per se, but I count an obvious five waves up from 1396 on the 4th. I’m watching the channel setting on up on the 15-min RSI. The asterisk marks a critical support point.
UPDATE: 3:15 PM
Apparently someone accidentally pulled the extension cord that powers the stock exchange; it’s been down for the past five hours and they just now noticed. Just kidding, of course, but it sure feels that way. Normally, this means big moves ahead, and I think this is no exception.
Here’s some charts I’ve been playing with.
McClellan Oscillator (NYSE) vs SPX:
UPDATE: 3:45 PM
Unbelievably orderly descent of the 15-min RSI on SPX. Almost as though it was being orchestrated…
Putting stop in here at 1437, will see if there’s a last minute spike. Otherwise, selling on the close.
UPDATE: 3:00 PM
That was a heck of a lot of work for a whopping 3.24% the past four days. SPX was up 2.2%. Definitely one of those weeks where the reward wasn’t quite worth the effort. I’m pooped.
What’s more, my 13 year-old daughter leaves tomorrow for a week on the East Coast — seeing historical sites from Boston to D.C. with her schoolmates.
I’ve been on the other side of the world from her many times, but this is the first time she’ll be the one far from home. Not sure how I’ll handle it…but, she’ll be fine. She makes friends everywhere she goes.
Hey, how about a contest around FOMC day just to liven things up? How about a free 6 months membership for whoever gets closest to the close on the 13th? I’ll put up a page this weekend with the details.