pebblewriter

Year: 2018

  • Crypto Carnage

    As the currency turmoil continues, it’s interesting to note that cryptocurrencies are having a worse go of it than EMs.

    Meanwhile, futures dipped enough overnight to finally backtest the SMA10.  They’ve since rebounded enough to backtest the broken red channel.  It remains to be seen whether SPX will join in and backtest its SMA10 and whether both can manage a backtest of their January highs.

    On the commodity front, RB finally tagged our next downside target — cratering 4.5% from yesterday’s highs.

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  • Waiting…

    ES/SPX failed to reach their 10-DMAs on Friday.  Given the long holiday weekend, those moving averages are now 5-6 points higher — leaving the twin targets even further apart.

    Interesting, isn’t it, that futures are off several points even in the face of huge overnight ramp jobs in oil and gas?  And, on that topic…it has now been 47 weeks since WTI dropped down to tag its 200-DMA (29 weeks for RBOB.)

    The last time each went this long was in 2011, following the first major post-crash peaks when rising oil and gas prices produced 3%+ CPI and 3.5%+ 10Y yields.  It also marked a collapse in the yield curve, from 2.72 in Jul to 1.52 in Sep.

    At least a few of you also remember the 22% collapse in SPX between May and October — with most of it occurring the first week of August when the curve flattened the fastest.

    Of course, it marked major bottoms for USDJPY and DXY, ushering in outstanding trading environments for currency pairs.  Today, with the 2Y and 10Y a scant 22 bps apart and DXY’s recent rally sparking crises in EM currencies, we have to wonder whether a repeat is possible.

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  • A Backtest or More?

    Today should shape up as a battle between holding a much-cherished round number (SPX 2900) and backtesting solid support (the January highs.)

    The futures are off about 5, with yesterday’s downside target of 2878.50-2881.95 still looking good — if SPX will relinquish 2900.

    Much will depend on the yen, which is strengthening in the midst of the EM turmoil…

    …and the 10Y, which has been in a holding pattern for months.  It looks ripe for a breakdown, but that would almost certainly invert the curve and usher in more than a backtest.

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  • Dollar Strength: No Free Lunch

    Don’t look now, but the Turkish lira is taking a beating again.  Much of it is self-inflicted (Erdogan), but it’s impossible to ignore the fact that the breakout from both the white channel and the more aggressive red channel occurred as the DXY rebounded sharply from it’s February lows.

    About 50% of Turkey’s external debt is denominated in US dollars — roughly twice as much as its total foreign reserves.  And, Turkey’s not the only country in trouble.  According to the BIS, EM dollar-denominated debt totals $3.7 trillion.  It recently published a list of 13 countries whose debt represents a bubble just waiting to pop.

    The US, as a net importer, benefits from a strong dollar.  It keeps inflation low and helps prop up the stock market.  But, at what point might the brewing currency crisis come home to roost?

    Futures are off about 5 points this morning, with ES currently backtesting the channel from which it broke out yesterday.  Holding it will be the important test for equities.  Stronger support remains at 2878.5, where the red channel bottom intersects with the former highs.

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  • GDP Beat: Good News?

    Futures haven’t decided whether this morning’s strong GDP 2nd estimate is bullish or bearish.

    The 10Y and 2Y have both bounced on the news, with the spread slipping to a mere 18 bps.

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  • Inflection Points

    DXY finally broke down a bit this morning, dropping through the purple TL from Jun 14.It’s not much, but it does open the door to the larger move we’ve been expecting for the past 2 months.

    The counter-argument:  EURUSD is approaching our next upside target – a backtest of the channel from which it broke down in July.  If it reverses there, DXY would likely strengthen again — particularly if the yen continues to weaken.continued for members… (more…)

  • How Not to Manipulate Stock Prices

    Sometimes you just can’t catch a break.  TSLA shares rose from 22 in 2012 to 387 in 2017 — helping drive Musk’s net worth to well over $20 billion.  But, the shares have since formed a triple top, failing to top 390 and coming perilously close to breaking down.

    This isn’t the first time Musk has faced such a challenge.  The stock spent three years trying to crack 290 – the red trend line below.

    We’ve documented past interventions — which have, by and large, been successful.  Musk’s well-publicized $25 million open market purchase (the white arrow) on June 12-13, for instance, saw the stock gap past the .618 Fib level and a trend line connecting recent highs.

    It was a nice gesture and helped divert attention from the mass layoffs announced the day before.  But, it didn’t take long for investors to realize that while $25 million is a lot of money to most people, it represented only 1% of Musk’s net worth.  And, it increased his holdings of the common stock by a pittance (0.2%.)

    It’s pretty obvious why Musk did it.  After breaking above 290 in April 2017, the stock had fallen back below it in March 2018.  The 200-DMA, rising white channel, and purple trend line all broke down in the process.

    After a miraculous, tweet-aided recovery, Musk got the stock back above the red trend line.  But, he needed it above 390.  It was not meant to be.  Too many missteps, too many worrisome headlines.  The best it could manage was a backtest of the broken white channel and the .886 retracement of its drop from 389 to 244.

    The stock slipped back below the red TL and 200-DMA, eventually bouncing off 290 yet again in late-July on news of a major new factory to be built in Europe.  The company’s earnings call a few days later featured a well-behaved Musk, a revenue (obviously not income) beat, and a promise not to float additional additional shares.

    Musk: We do not — we will not be raising any equity at any point, at least that’s — I have no expectation of doing so, do not plan to do so … And we certainly could raise money, but I think we don’t need to and we — yeah, I think, it’s better to — it is better discipline not to.

    Again, the stock gapped higher — back above the 200-DMA and the yellow trend line.  But, the naysayers weren’t having any of it.

    Despite having produced the promised number of Model 3’s, the company was dogged by reports of quality issues and was losing money on every sale — even though these were the higher end models with potentially larger profit margins.

    This was apparently the point when desperation set in.  As we discussed at the time [see: Is the Pressure Getting to Elon Musk?] it was fairly obvious to any competent chartist that Musk’s going-private tweet — like all the others — was designed to get the stock over the latest hump.

    It didn’t take long for Tesla watchers to question the deal.  The financing was supposedly secured, but no one stepped forward.  The board seemed genuinely alarmed.  Shorts launched lawsuits.  And, the SEC announced an inquiry.

    The latest rally ran out of steam at 387 – just shy of the September 2017 highs.  The stock tumbled back to the red trend line yet again.  It bounced, but that was before Friday night’s (11pm Friday night, following Thursday’s decision) admission that the going-private transaction was dead in the water.  As of this morning, the stock is heading back toward 290.

    Despite my cynicism, I’m rooting for Elon and Tesla.  We obviously need alternatives to carbon-based transportation for many reasons.  But, the stock is at these lofty levels based on the (aging) premise that it’ll soon be self-funding and turn a profit.

    The shorts are right to question this premise.  But, anyone who shorts at these levels, before the stock breaks down below the tangle of support at 290ish is ignoring the obvious — this is a CEO who will do whatever it takes to prop up his stock.

    TSLA might ultimately come crashing down.  But, I would absolutely wait until the purple trend line and horizontal support break down before jumping on board.

    Now, on to the rest of the market.

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  • A Fresh Look at Inflation

    It will come as no surprise to readers that St. Louis Fed President Jim Bullard (non-voter, über-dove) sees no threat of inflation and sees no reason to raise rates any further.  In an interview with Steve Liesman of CNBC, he stated:

    “If it was just me, I’d stand pat where we are and I’d try to react to data as it comes in.  I just don’t see much inflation pressure. … I’m an inflation hawk, but I just don’t see that developing. … I just don’t think this is a situation where we have to be pre-emptive.”

    With another disappointing Durable Goods Orders report this morning (-1.7% v -0.6 expected) I thought this would be a good time to refresh our views on inflation and the impact it has on a wide variety of official economic data.

    Powell’s Jackson Hole speech is coming up at 10AM ET.  Interestingly, Kuroda and Draghi (nor anyone from the ECB’s executive board) are not attending this year.

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  • The Waiting Game

    The biggest headlines of the year yesterday, and the S&P 500 gave up one point. And, as the plot thickens this morning, futures are virtually flat — propped up by pure algo action as VIX continues to slump and USDJPY continues to bounce off our downside target.

    With Jackson Hole coming up, there is much at stake in the markets.  So, as we’ve been discussing, don’t be surprised if the “markets” continue ignoring both headlines and fundamentals.

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  • Manafort and Cohen Guilty, Market…Celebrates?

    In a stranger-than-fiction bit of irony, investors are celebrating the longest bull market ever — with new all-time highs having occurred on the same day POTUS was named an unindicted co-conspirator in federal felonies.

    If you blinked you missed it, but it was a new high for SPX — which promptly sold off after trashing bearish technical patterns.Futures, which were off as many as 28 points after yesterday’s highs, are back up to a negligible 4-pt deficit thanks to VIX’s underwhelming response and oil’s algo-inspiring spike.

    It’s reminiscent of election night 2016, when algo slight-of-hand successfully distracted investors from the angst of the overnight session.  Can they do it again?

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