pebblewriter

Month: November 2020

  • Update on Gold & Silver: Nov 30, 2020

    We noted back on July 9 [see: Moment of Truth] that GC had reached our long-held 1823.60 target well ahead of schedule.

    From a charting standpoint, it should reverse here at its .886 Fib retracement. From a fundamental standpoint, of course, the fiscal picture suggests plenty of additional upside. Remember, it broke out of two different rising channels in order to reach this price level well ahead of schedule. We have to wonder whether a reversal in GC would, as would normally be the case, result in a rally in the long-suffering DXY.

    We were still bearish on DXY, so the potential for a reversal in GC seemed limited.

    As it turned out, the fundamental picture won out. Though it took it about 9 sessions, it finally pushed above its .886 retracement, and then its former all-time highs – breaking out of rising channels in an explosion up to 2089.20.

    We got a (quite violent) backtest of 1823 as expected, followed by six weeks of sideways consolidation while pretty much everybody waited for Congress to approve another round of stimulus. Unfortunately for GC, the stimulus never came.

    Since then, GC has been settling lower in a falling channel which pointed to a rendezvous with the 200-DMA – which was breached on Friday. This is a significant breakdown which implies a troubled path forward. But, there are other factors at work.

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  • TSLA: To Infinity and Beyond?

    Few stocks exemplify the current excesses of the stock market better than TSLA. In our last posted update on Jan 30 [see: TSLA on Autopilot?] we noted that it was approaching the top of a channel and a potential Fibonacci reversal point at 653.26 [131.15 post-split.]  We noted at the time:

    If it reverses here, the nearest support is at the 10-day moving average at 550, with 521 [104.20 post-split] being the nearest strong support and the previous high of 389.61 [77.92 post split] the next most likely.

    That weekend, ARK Invest said it estimated Tesla shares would be worth about 7,000 (1,400 post-split) by 2024.  And on Monday, Argus analyst William Selesky boosted his 12-month price target on the shares from 556 to 808 (161.6 post-split.)

    With such bullish tailwinds, TSLA gapped past the 2.24 extension on the open Monday morning and broke out of the channel, reaching the 3.618 extension at 190.29 the following day before running out of steam.  By Mar 18, it had plunged to its 77.92 previous high, shedding a stunning 64% in 6 weeks.

    In previous posts [see: Can TSLA Survive This Crash?, Is the Pressure Getting to Elon Musk? and TSLA Skids Into An Important Target] we have noted Elon Musk’s propensity to “support” the stock at important inflection points.  Remember “Funding Secured?”  Remaining above its 200-day moving average and previous highs certainly qualified as important.

    Since Mar 18, TSLA has soared an astounding 750%, surpassing even Selesky’s revised Aug 31 target of 566 following several sessions reminiscent of February’s blow-off top. Is there an end in sight?

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  • Charts I’m Watching: Nov 25, 2020

    It’s a big day for economic data. The GDP second estimate came in on target at 33.1%, as did the GDP deflator at 3.6%. Durable orders beat at 1.3% versus 0.8% forecast. But, it was Initial Claims at 778K versus consensus of 735K that necessitated a quick dip to yesterday’s lows in VIX.

    As a result, ES is back to flat after backtesting its broken channel overnight. continued for members… (more…)

  • The End?

    So…Janet Yellen again. The market seems quite pleased with the idea of a dovish Treasury Secretary paired with a dovish Fed. Is this the end of equity corrections?

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  • A Broken Record

    It’s enjoyable to nail a target like ES did last Thursday… …and VIX did on the 9th. It’s a lot less enjoyable to see ES and VIX tag those very same targets over, and over, and over again.

    But, it’s exactly the sort of action we often get around holidays when the algos are at the mercy of the MIT grads mashing the Short VIX button.

    Fortunately, there’s a little action in the currency space that’s much more interesting for traders. DXY is finally breaking down.

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  • Treasury and Fed: A Falling Out?

    The issue isn’t whether the Treasury is ending $454 billion in special lending programs on schedule on Dec 31. It’s that there was obviously a breakdown in communications and, apparently, a disagreement between the Treasury and the Fed. In other words, Mom and Dad are fighting.

    The dollar’s reaction has been muted so far, as the Fed still has plenty of firepower (as they keep reminding us.) But, of course, today is OPEX. The futures’ initial 39-pt nosedive was promptly “fixed” by a timely beatdown in VIX – that pesky .886 Fib at 22.66 again.  ES is back above its SMA10, so all is well. Next week, though, with low-volume holiday equity trading, should be another story.

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  • COVID Matters After All

    ES reached our first downside target overnight and, depending on whether or not DXY can extend its bounce and how much effort goes into suppressing VIX, could be in for more. Spiraling coronavirus infection and hospitalization rates in many states and countries are once again starting to get their share of attention.

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  • Charts I’m Watching: Nov 18, 2020

    Today’s levitation is brought to you by VIX which, by plunging below its Fibonacci .886 retracement at 22.66, has once again convinced the algos that it’s a wonderful time to buy stocks. Of course, that was in the low-volume pre-market. Carbon-based investors trading in the regular session don’t always agree.Meanwhile, the financial press (and the politicians) are focused on getting the meaningless DJIA up to 30,000.

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  • Update on XLF: Nov 17, 2020

    After being stuck in a textbook triangle pattern for almost six months, XLF finally broke out last week.

    We noted its having reached overhead resistance a few weeks ago [see: Yield Curve Model – Correction Imminent.] At the time, the 2s10s was threatening a breakout which, per our model, suggested a downturn for equities in general and XLF in particular.The 10Y did, in fact, reverse as expected and XLF dutifully tumbled – but, to a higher low. By Oct 30, a triangle was very well established and we were again facing a break out vs break down decision. Note that XLF had dropped through its SMA200 and was in a bearish SMA10/20 alignment. Had interest rates continued falling, I have no doubt that the triangle would have broken down and XLF would have reached the .618 Fib at 21.06. Instead, the 10Y popped back above its SMA200 (the yellow arrow)……and XLF got a much-needed bounce back to the top of the triangle. Yes, again. This time, however, TPTB were ready. After bumping into the top of the triangle on Nov 5 and 6, XLF received a fabulous gift.

    The 10Y gapped sharply higher, again breaking above the SMA200 it had fallen below and even above the top of the rising white channel. It was a massive move from 74.8 bps to 97.5 bps (point 6 in the chart above) in just two sessions thanks to the announcement of a vaccine from Pfizer and better than expected employment data [see: Vaccine!]

    As a result, the 2s10s broke above overhead resistance. A steeper yield curve is theoretically the solution to the banks’ woes. Though, historically, major breakouts in the 2s10s have led to equity crashes. Even for XLF. We’ll see if this time is any different.

    In the meantime, XLF has backtested the midline of the rising white channel from its 2009 lows… …following its very obvious failure to break out to new highs in February which resulted in its 44% crash. Note that a failure to push above the midline means at least a backtest of the triangle top around 25.26. Much will depend on some very fancy footwork by the Fed.The Fed’s exercise in ZIRP, which served as a lifeline to many sectors of the economy – not to mention the stock market, is a weight around the neck of the financial sector.

    Rising rates and a steeper yield curve might be okay with $7-8 trillion in debt. But, at $28 trillion, it’s a tad scary.Can the Fed find a way out of the corner into which they’ve painted themselves? Can they maintain the disconnect between the S&P 500 and the pandemic-stricken real world in which 30% of Americans are expected to be infected and another 200K are expected to die?

    “We’ll spend the next three months probably infecting another 15% and get to 30%, maybe more,” [former FDA Commissioner Scott] Gottlieb, now a CNBC contributor, said on “Squawk Box.” “Thirty percent assumes the current run rate if things don’t get any worse.”

    Stay tuned.

  • Update on Bitcoin: Nov 17, 2020

    Almost 8 months ago I posted our first outlook on BTC [see: FOMC Embraces MMT.]   We noted at the time that the FOMC was “officially in the short-squeeze business” after ES came within 19 points (trading was halted there) of our 2155 target and the Dow was set to test the Nov 8, 2016 (election day) lows.

    This was the perfect time to assess what unleashing massive amounts of liquidity might do to crypto.  We noted at the time that BTC should bounce from its triangle bottom (on the arithmetic chart) and return to test the top trend line at around 9,925. We also noted that BTC had rebounded back above a TL on its log chart – an encouraging sign that supported the fundamental outlook. We left off with the note:

    If you believe that BTC will necessarily rise (as gold will) as QE explodes, the charts support a continuing bounce. If you believe the FOMC will do whatever it takes to support the USD and crush surrogates such as BTC and GC, then keep an eye on that TL (5,000ish) as a fairly clear stop level.

    As it turned out, BTC did return to the triangle top where, as we noted in our May 28 Update on Bitcoin that it had an important decision to make. Having reached 10,074, it had held an important trend line on its arith chart…

    …but had failed to break out above a fan line on its log chart.Our outlook at this point was that price action should determine the next move.

    Is BTC a buy here on a potential breakout? Maybe. But, given the fact that it’s barely off its April highs, cautious types might want to wait for an actual breakout. If it occurs, there would be a small opportunity loss from not getting in here.  But better to give up a few percent than lock in a trade with a lot more downside.

    The alternative for more nimble types: go long but watch that rising TL from Mar 16 on the arith chart like a hawk. If BTC drops below it, run for the hills.

    It took over three weeks, but BTC eventually broke out and, in the process, completed an IH&S pattern we’ve been watching and, just this morning, tagged the pattern’s 17,150 target well ahead of our target date in mid-December.After exploding 2.65X since Mar 23, what’s next?

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