pebblewriter

Month: March 2017

  • PCE Tops 2%

    It’s been a long time coming.  But, the Fed’s favored measure of inflation finally topped its long-stated target of 2%. Of course, they prefer the “core PCE” which excludes food and energy price changes.  Why?  It’s lower, and at 1.8%, puts less pressure on them to normalize rates.   Either one of them is preferable to the also understated CPI which, at 2.7% YoY last month (before another month of 28% gasoline price increases) comes closer to an accurate measure of inflation.

    But, for accuracy, we have to look to alternative measures such as that of economist John Williams, who runs ShadowStats.com.   For his primer on why actual inflation is so much greater than the BLS reports, CLICK HERE.

    courtesy of ShadowStats.com

    Nevertheless, futures aren’t loving the news, as it hints at a more hawkish pattern of rate hikes this year.  But, with this being the end of the quarter, we’ll have to see what sort of follow through we actually get.

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  • Happy Brexit Day

    Everybody’s wondering whether Brexit will matter. With futures flat and currencies seemingly in the spotlight, we’ll spend the day revisiting our forecast for various currency pairs.

    We’ll also take a look at oil and gas.  These are the last few days of the month. And, given that gas prices are up about 28% YoY, we’ll examine the implications for March CPI due to be released in two weeks time.

    First, a quick look at the markets, which are seemingly back under central banker control.  In fact, there’s a VIX plunge waiting in the wings (the red arrow) for any bears who have thoughts to the contrary.continued for members… (more…)

  • Gold: Following the Yellow Brick Road

    I’m not a gold bug.  I’ve always thought the price is pretty heavily manipulated (long before it hit the headlines) and I guess I’ve avoided it on principle.  Looking back at my forecasts over the past year or so, that was probably a mistake.

    Since our December 14, 2015 forecast, GC has gained about 19% — not shabby.  However, if one heeded the forecasts offered with each subsequent update, the net return would have been over 80%.

    I’ve said many times, lately, that forecasting stocks has become a lot tougher than forecasting the various drivers of stock prices.  In the case of gold, it is obviously affected by the value of the US dollar, which is an important component of USDJPY — a key driver of equity algos.

    Thus, GC — like USDJPY, WTI and VIX — is one of those things that’s been relatively easy to forecast even though I’ve devoted only the occasional hour or two to its study.  Before we touch on today’s forecast, let’s take a look at the past year’s periodic forecasts.The numbers in the above chart correspond to the posts below.

    1. Dec 14, 2015 (GC: 1060):
      “If DX plunges further, as I expect it will, GC’s 4th bounce could be a doozy: 1150-1180 for starters, and 1286 after that.”  GC reached 1180 by Feb 8, topped out at 1287.80 on Mar 11.
    2. Mar 4, 2016 (GC: 1280):
      “I’d be very cautious in chasing GC at this point…acts like it’s reversing between here and 1286…take the gains…it could easily backtest the .618 at 1207.60.”  GC reached 1286 the next week, then reversed to backtest 1206.
    3. April 8, 2016 (GC: 1240):
      “If [gold] breaks above the purple midline [at 1270] then 1379-1380 is the next logical target…”   Gold reached 1377.50 three months later.
    4. July 7, 2016 (GC: 1361):
      “Our target range from April 8 was 1379-1380.  Yesterday’s 1377.50 was probably close enough.  If it can’t make new highs today, the next stop is the neckline at 1307..”  GC, which peaked at 1377.50 on Jul 6, dropped 5% to 1310 over the next 2 weeks.
    5. Aug 26, 2016 (GC: 1324):
      “…[there’s a] huge IH&S Pattern, the neckline of which is the former high at 1307ish.  If TPTB are serious about discrediting GC anytime soon it’ll involve getting it back below that [1307] support.”  GC tumbled to 1307, testing it three times before breaking down to 1243 on Oct 7.
    6. Oct 7, 2016 (GC: 1254): “…GC tagged its SMA200 and the bottom of a pretty good looking channel earlier — usually good for a bounce.”  GC bottomed the next day at 1243, bounced for a month, reached 1339 on Nov 9.
    7. Nov 14, 2016 (GC: 1227): …GC’s channel finally broke down two days ago and has potential to 1083 — a 12% drop from here.  What better way to finish the year out?  GC plunged 103 (8.4%) over the next month.
    8. Dec 5, 2016 (GC: 1175): If the .618 [1172.40] breaks down, then the next support isn’t until the red TL at 1130, followed by the .886 at 1083.50… GC reached 1130 on Dec 15.
    9. Dec 15, 2016 (GC: 1129): “GC is currently testing an important internal TL of support… a potentially important test…that could produce a bounce to the purple midline [at 1230] or the SMA200 — currently at 1278.”  GC reached the SMA200 at 1264.60 on Feb 27.

    After tagging its 200-day average in February, gold tumbled about 67, back below a key channel midline.  But, it is right back in the swing of things, having nearly reached the SMA200 a second time just yesterday.

    With all the discussion about what the Fed will or won’t do for the rest of the year, what’s next?

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  • Betwixt and Between

    SPX and ES managed to hold key trend lines and channels yesterday, bouncing from just short of our downside targets to exactly where we expected.  All it took was an 18.3% hammering of VIX — no problem for the Masters of the Universe (real subtle, guys!)

    But, there was no breakout.  There wasn’t even an overnight ramp job.

    This somewhat validates our theory about the oil and USDJPY two-step, meaning we should be looking for a big, sudden move in the currency markets as soon as today.

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  • Update on DX: Mar 27, 2017

    Last week I alerted members that the dollar was approaching potentially strong support at 98.65 – 99.  This morning, it reached the upper end of that range.We’ll take a quick look at the drop, and what to expect in the coming days.

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  • Reproach and Retreat

    The first big Republican victory — the repeal and replace of the ACA — has morphed into reproach and retreat.  The net impact: what does this failure portend for the rest of the Trump agenda and, thus, the Trump Rally?

    Regular readers know that I’ve looked askance at this rally from the start [see: Why the “Trump Rally” is a Fraud.]  It was born of a sharp reversal in CL, USDJPY and VIX — the key algo drivers.  Momentum traders jumped on board as it rose.  And, somewhere along the way, mainstream investors convinced themselves that the new and improved outlook justified an 18% rally.

    But, live by the algo, die by the algo.  The yen had to appreciate to compensate for higher oil prices.  Higher US and euroland inflation necessitated a drop in oil and gas.  And, front-running the Fed’s tepid response to spiking inflation was widespread.  With the Trump Rally narrative in doubt, there were simply too many plates to keep spinning.

    Futures are off 22.50 at the moment, leaving us some clues as to what to expect for SPX.  But, the more important side of the equation is where do WTI and the USDJPY dip to?

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  • Happy Birthday to Us!

    Pebblewriter was officially born on May 2, 2011, but we started tracking performance and offering subscriptions on the new site on March 23, 2012.

    Two thousand posts and 2.8 million page views later, we’re coming up on our 5th birthday. Since we haven’t run any membership promotions in months, it’s time to do something special!

    For the next 48 hours (through 3pm Sunday Mar 26), we’re offering a $50 rebate on monthly subscriptions and a $100 rebate on quarterly subscriptions.

    And, we’re reopening the annual membership special for another five lucky folks.  The next five people to contact me will score an annual membership for the ridiculously low price of $500.

     

    CLICK HERE to SIGN UP NOW

  • Catapulting the Propaganda

    If only the news cycle would cooperate, the technical picture is pretty clear: a breakout and a backtest.  But, Wall Street has sold investors on the narrative that the new administration’s policies are responsible for the huge run up in prices since Nov 9.  And, now, stocks are burdened by the fact that those policies seem stuck in the bog.

    The only real solution, of course, is to change the narrative.  As Bush II liked to say, sometimes you have to catapult the propaganda in order for “the truth to sink in.”  In this case, I suspect that means going back to the Trumpflation argument.

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  • Update on Nikkei: Mar 23, 2017

    The last time we focused on the Nikkei [see: The Nikkei, Yen and Oil: Joined at the Hip] it had bounced sharply following the US election.  Given the fundamental headwinds Japan faced at the time, the bounce seemed fairly preposterous.

    …the Nikkei 225…has soared 2,600 points in the face of: (1) the election of a protectionist US president, (2) higher oil prices, and (3) higher interest rates.

    But, it had landed NKD at our upside target: the .618 Fibonacci level at 18631.

    Ordinarily, we would expect a substantial pullback at a key Fib level like this — especially when the circumstances were a little sketchy.  Instead, NKD settled a measly 500 points (2.7%) and was swept up, like practically everything else, in the year-end stampede to all-time highs.  It spurted up to the .786 Fib at 19669 by mid-December.

    If there had been more of a pullback at the .618 Fib, we might have expected the .786 Fib to matter (i.e. a Gartley Pattern.)  But, with such a brief stay at the .618, it wasn’t at all clear.  Coincident algo drivers such as oil had also topped out.  Would NKD be affected?

    Unfortunately for the bulls, the race to year-end new highs was exhaustive.  NKD spent a full three months treading water and even breaking down — but, never by much.  Finally, on Tuesday, it did — shedding 2% in a single day.  But, it won’t surprise anyone to learn that this uber-manipulated index landed at strong support.

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  • Update on SCO: Mar 23, 2017

    Some of you are probably still holding SCO — the Proshares Ultrashort Crude Oil ETF I mentioned in January at 32 [see: Tick Tock.]  It tagged 42.51 yesterday, and is currently trading around 41.60  That’s a 9-pt (30%) gain in two months.

    It’s been above its SMA200 for several days, but is having trouble breaking out of a falling channel dating back to April 2016 — begging the question whether to hold it or take profits.

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