pebblewriter

Month: September 2012

  • Charts I’m Watching: Sep 21, 2012

    It appears my idea to close out longs because the bounce was done at yesterday’s close was premature dead wrong.  SPX looks like it’ll break out of the little channel on the opening bell.

    We might get a back test as in the past, but it’s difficult to say for sure.  Today is OPEX, so the safe play for traders is to close any shorts on the open and play along on the upside.

    UPDATE:  9:40 AM

    The market broke out of the channel we were watching.  As I mentioned yesterday afternoon, the upper bound is parallel to that of a similar pattern from earlier in the month.  When that TL was broken, SPX tacked on 30 points.  I don’t think we’re looking at the same thing here, but I can’t be sure.


    OPEX warps everything.  If we can drop back into the channel instead of just to its upper bound, then I chased after the upside for nothing.  But, watch for a back test right around 1463.

    I still believe we’ll get more of a reaction off of all those key Fib levels we just reached — chiefly among them the .886 retracement of 1576-666 at 1472.  Twenty-four points just doesn’t seem enough after an 808-pt climb.  On the other hand, after that long/strong a rally, it’s not so easy for the market to stop on a dime — especially after the supposedly game-changing QE3.

    The RSI picture shows a clear break out on the 15-min chart.  Normally, we will get  a back-test of the broken TL, which will also affect prices.  As the chart below shows, we broke through the initial white channel line and are bumping up against a higher, parallel one.

    Note that we’re also testing — for a third time — the yellow channel line (the thin yellow line rising through the middle of the chart.)

    If these levels can hold — and, by the way, they represent no special Fib level — then this morning’s rally will be contained at a 65% retracement of the 1474-1449 drop.  Given that it’s OPEX,  we could bump along the red channel line until EOD, at which point we’d be close enough to tag the .786 (small purple grid) at 1469.28 — call it 1470 (i.e. water torture for any remaining put holders, but no reward for the call holders.)

    But this would definitely be a breakout of the little white channel.  Can we do that without signalling higher prices to come?  The white channel is currently at 1467 — only a couple points below the .786. Is it worth playing the breakout for 2 points?

    Probably not.  But a breakout is a breakout.  And, there’s no guarantee SPX will continue to respect the big yellow channel.  If the rally extends into Monday, the .886 intersects the yellow channel line at 1471.71 — a relatively deep retracement for a corrective wave.

    Bottom line, I’ll likely put on more short-term longs if we break out convincingly above the small white channel — currently around 1467.  But, if we do, I’ll probably look to close out before the end of the day.  I just don’t have that much confidence in breaking the yellow channel line.

    If we reverse off the channel line instead, then we should at least head down to test the just-broken white channel line at 1463, or the bottom of a larger rising wedge (chart below, in yellow) at 1460-1461.

    A break there would open up the possibility of a trip back to the white channel bottom and our 1444 interim goal.

    I remain short, but will dump that position if we break above the top white channel line/yellow rising wedge/yellow channel line.  I chased after a few calls this morning (mostly as a hedge) for nothing, as the market hasn’t been able to seal the deal.  Those are on the chopping block unless we can move convincingly through the resistance mentioned above.

    UPDATE:  3:55 PM

    Market finally shaking loose.  VIX argues for lower prices ahead.

  • Charts I’m Watching: Sep 20, 2012

    ORIGINAL POST:  10:00

    The logjam finally broke.  We slightly exceeded yesterday’s 1464.50 target — topping out at 1465.15.  This morning’s action reached the downside target “A” we established on Monday [see: The Hangover.]

    We got a bounce at the bottom of the red channel — which should reach the 1454-1455 area — the recently broken red channel line and the midline of the white channel. But, I don’t think this move is finished (keeping in mind tomorrow is OPEX.)  More in a few minutes.

    continued… (more…)

  • Update on Oil: Sep 20, 2012

    Oil has tumbled the past few days, begging the question “what about QE3?”  It was supposed to prop up commodity prices.  There are many competing theories as to the influence of elections, Saudi assistance, etc.  But, the bottom line is CL had tagged some important channel lines and simply corrected.

    There are some pretty obvious long-term channels, as well as two huge rising wedges. The first one broke down only 50% of the way to its apex in price, and 61.8 of the way in time, yet — as is often the case with early breaks — prices came back to tag the apex in time (as well as a major channel line.

    The latest RW broke much later — .707 in time and .786 in price — and is already beyond the apex in terms of time.  The apex is around 144 — close enough to the all-time high of 147 to be considered a double-top were it to come into play.

    To do so, however, CL would have to break through a fan line from that 147 high.  As the following chart shows, the fan lines have been pretty effective at signaling major moves.

    The next such potential support is just below at around 88.  But, this line has been broken twice before on strong plunges, and CL seems determined to make another tag on the long-term support represented by the solid yellow channel line below at 78.

    But, to do so, it’ll have to break through triple harmonic support.  CL is also nearing the largest pattern’s .500 Fib at 90.24, which corresponds with the .382 on two smaller patterns at about the same price.

    It’s easier to see on the close-up.

     

     

     

     

  • Hanging On: Sep 19, 2012

    Good morning.  SPX is getting support from the fan line from the early September lows (our yellow channel.)

    I’m looking for a bounce to flesh out the channel — probably to 1464.50 or so.

    UPDATE:  10:00 AM

    We’re bumping up against a line in our big, red channel at 1463.1, so that could be the extent of this push.

    I’m charting a new, broader channel in red.  It’s speculative at this point, but it corresponds with a 1.618 extension of yesterday’s high to its low.

    The 15-min RSI has hit resistance, but SPX could eek out a couple points higher on negative divergence.

    More in a few minutes, including an update on the longer-term picture and posts on RUT and CL.

    continued…

    (more…)

  • Charts I’m Watching: Sep 18, 2012

    ORIGINAL POST:

    Stocks continue to slip in a very controlled fashion, following our little channel religiously so far.  I remain short from 1474.

    The EURUSD, which also completed a Bat (the larger red pattern) and two Crab Patterns last week, also continues to ease.

    Some have asked about the dashed red channel line furthest to the right.  It has no particular significance other than it represents approximately the same width as previous such channels.  Because similar-looking channels vary in width, I always construct a new prospective channel that represents the average width of the past few whenever the current channel is broken.

    Odds are that this one was drawn a little too narrow and we’re going to get a reversal here at the harmonic targets.  The alternative — that three harmonic patterns are busted and the channel width will dominate — is much less likely.

    UPDATE:  10:50 AM

    We didn’t get much of a retracement yesterday, so that’s still hanging out there.  The channel needs broadening, and it’s likely it’ll happen as a result of a bump up to establish a parallel channel line that includes the 1474 peak — as occurred on Aug 22, doubling that channel’s width.

    Also, note the red RSI channel that corresponds with the mid-August corrective channel.  It features channel lines which are the same slope as the current one.  When it was broken to the downside, we saw a back test which didn’t quite complete, and a subsequent lower low.

    When the RSI channel broke, SPX had already dropped from 1426 to 1419.  It fell as low as 1406 when the back test took it back to 1416.  The back test completed, SPX fell as low as 1398.

    A similar expansion of the current channel could take prices up as high as 1462-1464.50.  It’s difficult to say with absolute precision as the channel slope is subject to change so early on.  But, 1462 marks the recently broken red channel line, so that would make for a normal back test.

    If the back test completed there (without retaking the RSI channel) and the price channel continued similar to that in August, the drop would be to around 1444-1446, which is our Point B target around the red channel midline.

    UPDATE:  11:45 AM

    The back test reached 1461.47, but didn’t quite flesh out the channel there. It came back to tag the midline, and has potential to 1462.20-1462.90 around 12:00-12:15.  If the channel is still intact, the easy downside within the channel is 1453.74 by 12:45.

    At that point, SPX reaches the white dashed fan line off the early September lows.  Expect the bulls to defend that line, as it could be construed as the lower bound of an insanely steep channel higher.

    How steep?  It gains about 5 points per day, so the upper bound is already up to 1484.  I don’t anticipate this happening, but it’s good to know the potential if we should suddenly ramp higher and take out 1474.

    We’ve made about 15 points since the peak.  A drop to 1454 in the next hour would bring that up to 20 points.  I’ll likely take some profits and/or play the bounce at that point — but, we’ll cross that bridge when we come to it.  Remember, this is OPEX week.  So, a fast and furious plunge is that much less likely.

    You hate to leave money on the table if there’s more downside.  Many investors continue lowering stops; so, a significant bounce takes them out of their short position.  Others use channels — a break out signals time to switch sides.  I like both of those, as well as my trusty RSI channels and TLs.

    You can also construct trades such that short term moves are captured by short term trades such as near-term options, and longer-term moves are tracked with less volatile instruments.

    Any of these plans are fine — but the important thing is to have a plan and stick to it.  I think all professional traders would agree that most of their worst trades come on the heels of a decision to bend their own rules.

    UPDATE:  2:25 PM

    We’ve reached the bottom of the steepest channel up (note, I’ve changed the channel colors, as the previous colors were getting confusing.)

    The market must either commit to the 5 point-per-session rate (the little yellow channel up), or settle into a more sustainable slope (the white channel up — about 2 1/2 pts/session.)  The yellow channel is nestled within the white channel which is nestled within the red channel (about 1.9 points/session.)

    My take is that the yellow channel will break, and prices will test the white channel midline, followed by the red channel midline.  At current prices, we’ve only retraced about 23% of the 1396-1474 runup.

    A red channel tag Wednesday or Thursday would make for a more respectable .382 retrace — roughly equal to a .618 retrace of the 1429 (Sep 10) to 1474 spike.

    For now, the market seems content to stair-step lower, staying within the little white channel down.  With an upper bound at 1460 and lower bound at 1450, it serves as the simplest decision-making tool for setting stops and spotting trend changes.

  • The Hangover

    Bulls had quite the party last week.  SPX broke through fan lines, Fib levels and resistance galore on decent volume and breadth, reaching our 1472 target in a big blowout party hosted by the ECB/GCC/FOMC.

    We discussed this target as far back as March 18 [see: Big Picture].  It was refined further a few weeks later in my posts re an analog I developed [see: New Analog I’m Watching].

    The timing ended up being off, as we made essentially two right shoulders in that H&S pattern, and thus reached the bottom in early June instead of early May.  It also took longer to get up to 1472 than I expected – 3 1/2 months of gut-wrenching chop instead of the nice 3-wave move higher I charted.

    SPX also fell further than the 1305-1317 target I originally anticipated.  I amended it along the way to as low as 1295, never imagining we’d break the 1292 support level.  But, in general, the analog played out pretty darned well — establishing new highs and turning many bears into bulls.

    The great thing about reaching targets, of course, is the profits.  Our theoretical long/short SPX portfolio is up about 55% in the 5 months since that analog was posted [see: results.]  The scary thing is figuring out where things are going next — as it’s absolutely no fun giving any of it back.

    Are we really on a sustainable path to SPX 2000 now that Bernanke has practically guaranteed the market will never go down?  Or, are we due for a killer hangover — those 208 points vanishing faster than a Vegas bachelor party security deposit?  The answer, as usual, is somewhere in between.  Though, since I shorted at 1474 Friday, you can probably guess how I expect this to play out.

    continued… (more…)

  • Update on Gold: Sep 17, 2012

    Gold nailed our September 6 forecast last week [see: Sep 6 Update on Gold], fulfilling both the Bat Pattern and Butterfly Pattern objectives in the exact time frame we expected — the confluence of the ECB, GCC and FOMC decisions.  Here’s the chart posted on the 6th:

    Since reaching the .886/1.618, prices have stalled out and are due for a pullback.  (Note, I’ve adjusted the red pattern’s Point X.)

    The minimum retracement I expect is to the purple channel line at 1746.  It also marks the yellow channel line that’s several years in the making.   If things get rolling, we could easily test the 1700 levels.

    Good luck to all.

  • The World According to Ben

    The World According to Ben is inflationary.  It is confident.  Its citizens consumers buy stuff today because it might be too expensive tomorrow — or, just for grins.  It’s a world plagued not by irrational fears, but by irrational exuberance.  It’s a return to those thrilling days of yesteryear, when nothing bad ever happened, as long as you owned your house (preferably 2-3) and borrowed lots of money to fill that house with plasma TV’s and Porsche’s.

    But, we’ve been down that road before.  Seems to me it didn’t end terribly well.  Fortunes were lost, families were torn apart, lives were ruined when the bubble burst.  Ben would like us to think this time will be different, that the Fed is now watching so closely that such a thing could never happen again.

    But, isn’t it interesting that CPI just posted the biggest monthly spurt in over 2 years?  And, of course, that was before Benny’s helicopter even lifted off.  As Zerohedge put it:

    “In other words, the food inflation which is already spreading through the economy courtesy of the record drought, is about to be supported by some brand new Fed-generated inflation. Luckily, as yesterday, nobody uses gas or food.”

    Here’s the chart of the day year.   For those unfamiliar with Bat Patterns, learn more HERE.

    Not all Bats mark huge reversals.  Since we could put in a Point B at the .618 retracement, there’s the possibility we’re constructing a Crab Pattern that ultimately targets the 1.618 (2138.)

    Point B could also have been the .786 reversal at 1370 in May 2011, which would indicate a Butterfly Pattern targeting the 1.272 (1823) or the 1.618.  On a scale this large, these are obviously patterns that could take years to play out.  And, we never use harmonic patterns in a vacuum; their targets must be supported by other technical analysis.

    The last really big Bat Pattern we completed was in January of 2007, when SPX had retraced 88.6% of its 2000 – 2002 plunge from 1552 to 768.

    There was a relatively minor pullback of only 98 points; but, it was certainly enough for traders to capitalize on.  Note the pullback to just below the previous Fibonacci level (the .786) was a nicely formed Crab Pattern — one of our other favorites.

    Bottom line, be ready to short with some gusto at 1472.43.

     

    CHARTS:  9:40 AM

    The dollar came oh-so-close to hitting our 78.818 target this morning.  Recall that this is the .886 of the larger red Bat Pattern (lot of Bats going around) and should provoke at least a bounce — maybe much more.

    The daily RSI shows how very oversold it is, but that doesn’t mean it can’t go lower — simply that it is likely nearing at least an interim bottom.

    Meanwhile, SPX is nearing our 1472 target. I will ease some stops into the equation as we approach it, as I’d like to remain long for as long as possible.  This is a 35 point gain since we went long yesterday at 1437 with the Fed’s announcement.

    Note, this is a biggie — the .886 of the Oct 07 – Mar 09 crash from 1576 to 666.  It’s a big ol’ Bat Pattern that should provoke quite a reaction. But, lots of folks are watching it, so it’s possible some of them might jump the gun and sell before actually tagging it.  Then, again, we could be seeing a lot of short covering still; and, we could just as easily overshoot it.

    We’ll watch the RSI’s for any sign of weakness.  Having topped 1464.71, it will ideally turn into support.  If we get a reaction, I’m thinking the green channel line we just topped would be a good initial downside target (1439ish.)

    If you can watch the market like a hawk, the 5-min can be more effective than a round number stop.  Market makers know where the stops are (yes, yours too!) and love to trip them on the way to their ultimate target.

    Whole lot of overbought going on in the RSI above…

    Note that the dashed purple channel line cutting across our path at 1472.43 is one of those blue channel lines from the 30’s we discussed yesterday.  This one just happened to intersect with the 1422.38 high from April.

    UPDATE:  10:10 AM

    DX just tagged the .886 we discussed above.  Should get a bounce here, and SPX (1469) should tag 1472 any minute.  Can’t resist a few Sep 146.5 calls at .72, just for grins.

    UPDATE:  10:20 AM

    Going ahead and pull the plug on my longs here at 1474.  The 5-min, 15-min and 60-min charts are all showing negative divergence.  I’ll place stops at 1475 or so, trailing lower as need be, just in case it makes another run higher.  But, this should be the start of a nice downturn.

    UPDATE:  12:25 PM

    Back online.  I don’t know if it’s my computer, WordPress, Firefox or GoDaddy, but things had slowed to a crawl here.  Had to shut down, run Disk Utility, etc.  Things seem to be running much better now, so probably my computer — which has seen very heavy use during the several 20-hour workdays this past week.

    SPX is back to 1469 after dropping as low as 1465.  This is likely a bump on the way lower, but I want to remind anyone else who’s short to please use stops. It would be shame to give back the 37 points we’ve scored since yesterday just because the market doesn’t feel like reversing at the .886.

    I don’t think it’ll happen…just like I didn’t think the Fed would pull the trigger on QE yet.  The point is, it could.  And, it pays to play it safe — especially if you can’t sit glued to a monitor 24/7.

    I’m watching the 5-min RSI, wondering if it’ll turn at the broken trend line.  The channel on the 60-min RSI shows the immediate downside potential.

    Not to mention the price channel itself…

    Remember, the upper bound of that channel is also a very significant TL.  Viewed in this manner, I could make a case that we’re back testing the previous channel that ran from Aug 5, 2011 to the 1422 peak.

    UPDATE:  1:00 PM

    Some initial downside targets…

    Each of the dotted yellow lines above is a Fan Line from the 2007 high.  FL A is through the most recent high of 1426.68 and currently sits at about 1425 — a 49-pt pullback from this morning’s high.  It also has the benefit of keeping the Elliott Wave folks happy with the upside case, as it would keep SPX higher than the April 1422 high.

    Fan Line B is through that 1422 high, and currently sits around 1407.50.  It intersects with the lower bound of our red channel on Sep 24 and would potentially keep the channel alive.  It also intersects around there with the .886 of the current pattern — a legitimate pullback as we push toward the 1.618 extension of a potential Crab Pattern at 1518  (just saying…)

    Fan Line C is through the April 2 high, but without the shadow.  It’s obviously the most extreme of the three, and would cause SPX to lose the channel it’s currently in.  It also intersects with the Big Bat’s (1576-666) .786 — the next major Fib lower (of May 2011 1370 high fame) around December 31 — a long, slow decline.

    Of the three, I’m most attracted to B.  I think it’ll be appealing to TPTB to keep this rocket ship on track, and what better way than to keep it in this incredibly steep channel to the moon.  It also intersects with one of our big red channel lines [see: What A Wonderful World]  that originates at the October 2007 shoulder, so it could be seen as a back test of that.

    Any pullback should be at least to 1444, the broken green and red channel lines from our study yesterday and the mid-line of the channel we’ve been in since June 4 at 1266.

    This isn’t a formal forecast yet, just intra-day noodling from your humble and very sleep-deprived servant.  But, it has appeal.  More this weekend on the forecast.

    UPDATE:  2:00 PM

    Probably a little premature, but here’s a potential channel for the 15-min chart.

    We’re caught a little bounce on that little RSI TL, but the channel’s still intact.  The 5-min RSI indicates we might push lower.  I’m watching to make sure RSI doesn’t push up through the downward sloping TL.

    Meanwhile, the 60-min still shows plenty of room to the downside…

    …as does the daily:

    UPDATE:  2:45 PM

    Here’s why the market’s currently stuck.  The differences on the 5-min chart are subtle, but will decide whether we stay in the narrow downward channel or not.  Which will play out?  Day traders should be thinking about stops here.

    UPDATE:  3:10 PM

    It isn’t going to go down without a fight.  Refining the above charts a little…  The bottom of this little channel is currently around 1460.

    UPDATE:  3:15 PM

    Updated VIX charts show a good chance of a bounce off the yellow channel line and the .886 of the recent 13.3 to 18.96 ramp (small purple pattern.)

    The RSI certainly looks ready to bounce.  New channel up, or a pause on the way down?  Given the way negative divergence has worked with VIX, a higher low on RSI could easily correlate with a lower value — maybe retest the 13.3 lows in conjunction with higher equities after the Bat reaction we get?

    I feel a forecast coming on.

     

    UPDATE:  3:30

    We certainly called the dollar right.  It slightly exceeded our 78.818 target and has bounced nicely.  Also, looks like a good new channel coming up through this morning’s low — TL “D” as we speculated earlier.

    Those SPY 146.5 puts I bought this morning at .75 are currently trading at 1.27.  Nice…

    Here’s our updated 5-min SPX chart.  That thin red TL is the 2nd highest channel line in the red channel up from 1266.

    A close at these levels would leave us with a shooting star candle on the day we completed a five-year Bat Pattern. I like those odds, and will hold short through the weekend.

     

    It’d be really something if we were to close down on the day…

     

    UPDATE:  5:00 PM

    FORECAST ALERT!!!

    I’ll dig up the actual numbers this weekend, but here’s a back-of-the-envelope calculation that intrigues me.   Many observers have noted the diminishing impact of each successive QE exercise.  What if…

    • QE 1:  666 to 1228 = 562 points.
    • QE 2:  1010 to 1422 = 412 points (412 = 73% of 562)
    • QE 3:  73% of 412 points is 300 points.  1266 + 300 = 1566.

    It just so happens that 1566 is a stone’s throw away from 1553 — the Crab Pattern 1.618 extension of last year’s plunge from 1370 to 1074.  It also happens to be the apex of the rising wedge we broke in April.

    Darned if it wouldn’t also make for a very nifty double-top (not to mention a perfect right shoulder for el patrón de cabeza y hombros grande) somewhere around the time we tumble off the fiscal cliff with our new, lower credit rating.

    I definitely feel a forecast coming on.  Better lie down and let it pass.

    Have a great weekend, everyone!

     

    P.P.S.  one last chart…  I don’t always watch it, but today AAPL got within 3.02 of a 1.618 extension of this week’s 683-656 drop and 3.58 of a 2.618 extension of July’s 620-570 drop.

    It also tagged a channel line that dates all the way back to September 2002.

    Monday could be very interesting…

     

    P.P.S.

    I had a couple of emails regarding the delay in my 10:20 AM update.  I thought that update had posted when I had to reboot my computer (see the 12:25 update.)  So, my apologies.

    It’s just me here, folks.  No trading desk, no hot receptionist, no tech guy, no gofers.  So, on a day when I put up 30 charts and write 2,000 words — on the heels of a 30-chart and 4,000 word post deconstructing the four major crashes over the past 84 years (and a contest, what was I thinking?) — stuff is gonna happen.

     

    My wife tells me I’ve slept a total of 20 hours over the past four nights (which kind of explains this rant.)  If he were alive today, I’m sure Lloyd Bridges would agree it’s been a long, long week.  I should have suspected as much when my web-hosting service GoDaddy went kaput right in the middle of Monday’s session.

    On the bright side, we reached our 1472 target and scored 46 points since the Fed announcement yesterday.  Now, some of you might have missed: (1) the dozens of times I’ve named the 1472 target since March 18 [see: Big Picture]; and, (2) the dozen charts and mentions in yesterday’s post; and, (3) the three mentions and five charts beginning at 9:40 this morning.

    A few of you might have waited until my 11:47 email to act. But, you still could have sold/shorted near 1470.  Sure, you would have only made 44 points this week instead of 52.  But, that’s still 3.1% in one week.

    It’s not as nice as last week’s 3.6%, but it brings our total since March to 61%.  That doesn’t suck too much, especially for a portfolio that didn’t involve leverage or praying to Tim Cook (AAPL was up a measly 16% over the same period.)

    I guess all I’m saying is I’m pedaling as fast as I can.  Pebblewriter.com is a labor of love that, at almost six months old, doesn’t yet cover the bills (my college-bound girls eat a lot.)   Maybe some day I’ll wax poetic from the Orient Express or an Oceanis 58 docked in Saint-Tropez, and go weeks between trades.  But, in the meantime, I trade for a living.

    If you’d like me to sleep more, trade less and get e-mails out in a snappier fashion, let your friends and colleagues know about our little experiment.  It’s a win-win with a very simple equation: the more members we have, the more I can focus on the blog.

    Thanks.

     

     

     

     

     

  • What a Wonderful World

    ORIGINAL POST:  4:15 AM

    Whether driven by fundamental constitutional considerations or a keen awareness of the implications for their pensions, the German Constitutional Court granted the German government conditional approval to throw good money after bad.  How conditional?

    Germany’s ESM share will initially be capped at EUR 190 billion.  As Germany is the only ESM participant with any meaningful extra cash laying around, this action turns Draghi’s bazooka into more of a pellet gun.  It limits the ESM’s “unlimited purchases” of sovereign bonds.  And, it waters down Draghi’s “whatever it takes” pledge to “whatever we can dig out from behind the sofa cushions.”

    The markets immediately ramped on the news, but I suspect it’s only a matter of time before less bullish implications fully sink in.

    The dollar sank slightly beyond our immediate target of 79.859, reaching 79.78 at the low so far.  The next lower level of support is a .786 at 79.30 – 79.43.

    The EURUSD tagged 1.2905, the 1.272 of the smaller of our two harmonic patterns.

    There is substantial resistance at 1.2938, and then 1.3046.

    More later this morning, including implications for stocks going into the FOMC announcements this afternoon.

    UPDATE: 10:45 AM

    The GCC’s decision practically guarantees more legal wrangling down the road.  Thus, the ESM’s efficacy will most certainly be procedurally hampered.  But, the larger issue is its size/composition.

    As currently laid out, the fund will amount to EUR 700 bn.  Consider, however, who’s putting up the lucre and when it arrives.

    As Mish reported in June, the EUR 700 bn is funded in 5 annual payments.  For 2012, there should be EUR 140 bn with which to beat back the bond vigilantes.  However, several of the supposed contributors on the list are also likely contributees.

    How much can we expect from the likes of Ireland, Greece, Portugal and Spain?  Subtract their EUR 25 bn 2012 share, and the ESM is left with EUR 115 bn.  How long will that last, given that Spain, itself, is estimated to require upwards of EUR 300 bn?

    Another fun fact: according to recent polls, 54% of Germans are none too happy about forking over hard-earned euros to support their spendthrift neighbors.  Angela Merkel, who’s tied her political career to the preservation of the euro, is up for election next year.

    Her party, the Christian Democrats, is already in the cross hairs, having lost control of  Germany’s most populous state — North Rhine-Westphalia — to the Social Democrats in May.  How well can she defend the ESM/ESFS’s actions when she’s watching from the sidelines?

    More in a few.

    UPDATE:  11:15 AM

    Can’t escape the irony of the Libyan embassy attack, juxtaposed against the iPhone 5 announcement.  While the risk of war in MENA escalates further (finger pointing at Gadhafi and Al Qaeda, there must be an Iranian connection) the financial world will celebrate the introduction of another shiny new toy.  I wonder which will get more air time…

    UPDATE:  11:30

    So far, the market is reacting as we discussed earlier: not exactly ecstatic with the GCC news.  SPX made it as high as 1439.15 before beginning a slow fizzle to almost breakeven.  It’s currently up 4 and change.

    While waiting for the red-hatted ones to make their appearance last night, I had time to do a total reset on SPX.   Every month or so, I erase all patterns on my charts and start with a fresh slate — just to see if I come up with the same conclusions.

    Bear with me while I work through some fascinating long-term charts that have much to say about the market’s immediate future.

    continued… (more…)

  • The Midnight Hour

    The market is wandering at the moment, trying to establish some tone for the day.  It looks weak at the moment, but in the absence of any fresh news/rumors re the German court ruling and/or QE3, I suspect most traders have already either placed their bets or taken their money off the table.

    One of my favorite charts to watch when the market is drifting is the short-term DX — say 15-min.  Currency markets are deeper and less susceptible to retail influences than equities.  I consider them “the grown-up in the room” and believe their tells are often more accurate.

    A bounce off that little red dashed TL (and white RSI TL) and I’ll likely re-short.  A break, and equities will probably continue higher.  Here’s the 5-min chart:

    Remember, the dollar is still trying to battle back from a deeply oversold condition.  The daily RSI fell out of its channel Friday, but is doing its best to climb back.

    More in a few.

    UPDATE:  10:45 AM

    There’s the break down through the TL — should give stocks a boost.  But, there’s support down below at 79.859-79.901, so I’m not inclined to chase it.  I’m in cash now, and expect to be in cash at the end of the day.

    Random thought for the day:  if Treasury, which is joined at the hip to the Fed, knew that QE3 was coming Thursday, would they be dumping their remaining AIG right now?

    *  *  *  *  *  *  *  *

    The German Constitutional Court is scheduled to deliver their verdict on all things ESM at 0800 CET, 3:00 AM EDT — midnight on my beloved left coast.  Will their love come tumbling down?  We’ll have to wait till the midnight hour.