pebblewriter

Month: July 2020

  • Not a Breakout

    Yes, it was impressive. AAPL, FB, GOOGL and AMZN delivered big time. Yet, AMZN, the one that was best positioned to clean up, hasn’t yet broken above a key Fib level, let alone the top of the 20-year old channel which marked the July 13 reversal.

    If it does, fine, bears should prepare for a long, long winter. But, until it does, this remains a dangerous moment for the recovery’s poster child.

    While we’re at it, did anyone notice that after tagging yesterday’s downside target, futures bounced only to the .886 Fib?  Or, that SPX is poised to pop and drop at its own .886 Fib?

    Again, not a breakout.

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  • Thinking About…a Correction

    Will the addition of another “thinking about” keep stocks aloft until the next FOMC meeting?  Futures aren’t looking so hot, perhaps because WTI has now joined RBOB in breaking trend, 10Y yields have gapped lower, and VIX broke out of its falling wedge. The algos are not happy.

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  • What Market?

    The holding pattern continues. Futures levitated overnight to the gently falling 10-day moving average yet again. And, yet again, VIX provided the precise guidance the algos required.The longer this goes on, the more we begin to resemble the Nikkei, with preset moves prescribed by a central bank: support and resistance predetermined by committee. It makes charting easier, but it strains credulity to even call it a market.

    Nowhere is this as obvious as in WTI, which has traded in an ever narrowing range since its miraculous recovery in April and May. Note the tilting trend lines of support.  We place downside targets on the chart to represent not our actual expectations, but to indicate where prices might drop if the bankers were to lose control.RBOB futures have done the exact same thing, also ignoring such trivial issues as supply and demand or geopolitical developments. Fortunately, the FOMC concludes their meeting today and the motivation for the current holding pattern will pass.  Until next time…

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  • No Thanks

    How would you like to be on the FOMC, saddled with the messaging job from hell? You want to boost consumer confidence and business activity, but not so much that the markets get a whiff of inflation and interest rates shoot higher as debt spirals out of control.

    You want a strong dollar to stave off inflation, but can’t convince the currency markets that the US, with its failed pandemic response, is deserving. You want to avoid another equity meltdown, but pretty much everyone now recognizes that the markets have lost all connection with reality as speculators bid up already overpriced securities.

    No thanks.  If there’s an easy way out for the Fed, I can’t see it.  So, it’s one day at a time, one stick save at a time, hoping that a vaccine will come along and restore at least the semblance of integrity.

    For what it’s worth, futures are back below their 10-day moving average this morning. continued for members… (more…)

  • Ready, Set…

    In the latest 30-pt ramp job, ES ran out of juice at a backtest of its 10-day moving average – not exactly a bullish move. This would leave SPX with a backtest of its own, suggestive of the additional downside Friday’s session left on the table.

    It also suggests a nice little Head & Shoulders pattern that could finally get a correction rolling. Should we be concerned about the breakdown in the dollar and breakout in gold?  Or is the yen’s breakdown the more serious threat to stocks?

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  • More Where That Came From

    In yesterday’s A Failure to Capitulate we chided the market for its failure to make good on the downturn signaled by our numerous bearish charts. For once, the market gods were listening. Futures are off 85 points from recent highs and teasing us with the notion of a — brace yourself — drop below the 10-day moving average. While we await the next breathless vaccine announcement or congressional handout, note that VIX popped up to our first upside target……and USDJPY is finally breaking down.Don’t look now, but AAPL is even making nice progress following its Fib tag. Is there more where that came from?

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  • A Failure to Capitulate

    Futures have given up all their Tesla gains and are pointing to a slightly lower open for the S&P this morning.Apparently, a threatened breakdown in VIX just isn’t as effective as it used to be.

    What we have here is a failure to capitulate (apologies to Cool Hand Luke for the cheap rip-off of a great movie.)

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  • Currencies: A Turning Point

    Lots going on this morning, with currencies joining VIX in leading the equity circus. EURUSD smashed its March highs and is closing in on one of two levels of overhead resistance as DXY tests an important channel bottom. The next moves for each will have important implications for the economy and for algo-driven equities.

    ES has recovered 23 points of its overnight losses after failing to hold our .886 Fib target.  It’s one vaccine headline away from recovering 3258.

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  • Shades of 2015

    SPX reached our Fibonacci .886 retracement target yesterday. It’s a level I never imagined seeing after stocks reached important support back on March 23. But, then, I never imagined $5 trillion in liquidity  – equal to the nation’s Q2 economic output according to the Atlanta Fed – being pumped into the economy in the second quarter.

    We’ve always known there would be a fundamental battle between another round of QE (remember when Powell insisted it wasn’t QE?) and the realities of the worst pandemic in over 100 years, spawning unemployment that would exceed the GFC and deaths in the hundreds of thousands if not millions. But, this market cares little about fundamentals. It cares about liquidity and a steady diet of the right signals being fed to the algos.

    Central bankers and governments have delivered on both counts – with WTI having risen $59/barrel and VIX plunging 72% and with liquidity injections purportedly intended to bolster employment which, in many cases, went into stock buybacks.

    Nevertheless, here we are. In Harmonics, the .886 Fib represents an 88.6% retracement, or rebound, of a significant drop.  It’s typically as large a rebound as you’ll see unless stocks test their former highs (a potential double top) or push past them to new highs. Unfortunately, it’s not always clear cut.

    In May 2015, SPX tumbled 12.5% after coming within 3.32 points of our 2138.04 target. By Nov 2, it had retraced 88.6% of those losses, at which point we looked for a pullback. Instead, it spent the next several sessions pushing above the .886, no doubt stopping out plenty of shorts before finally succumbing and making new lows – the 1.272 Fib extension at 1823.42.With the pandemic picking up steam – at least in the US and many lesser developed countries – the fundamental picture is looking iffy at best. The technical picture, on the other hand, is flashing plenty of warning signals. Can we count on it mattering?

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  • Charts I’m Watching: Jul 20, 2020

    Another day, another VIX plunge in the minutes before the open – and futures, which were off 35 points overnight, are suddenly back in the green. continued for members… (more…)