pebblewriter

Year: 2020

  • 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?

    continued for members… (more…)

  • Our Made to Order Market

    I heard two quotes in the financial news this morning that caught my attention. First: that about 30% of Americans will end up getting infected with the coronavirus.  Second: the S&P 500 is on pace for the 5th best month in the last 30 years.

    These statements are incongruous, at best. Yet, IMO, it’s more a comment on the ability of central bankers to determine stock prices through both direct and indirect means.

    Everyone knows about the indirect: flooding markets with trillions of dollars that have to go somewhere. Most observant traders know about the direct: hammering volatility and manipulating currency pairs and other drivers of algorithmic trading – the tail that wags the equity dog.

    For an example, look no further than VIX. It has tagged a deep retracememt of its last rally three times in a row.

    This, of course, follows the bearish (bullish for stocks) 10/20 cross and channel breakdown we anticipated last week.continued for members… (more…)

  • Friday the 13th, 2020

    Ever notice that things seem that much more ominous with the year “2020” thrown in?  It’s not hard to imagine a film noir set sometime in the future where a guy clamps another on the back and says “forget it, Jake, it’s 2020.”

    Futures have ramped higher on the usual VIX overnight smackdown, with multiple backtest targets hit yesterday and more due to be tagged today.

    continued for members… (more…)

  • CPI: MIA

    Futures remained slightly lower following lower than expected initial claims (709K vs 740K consensus) and CPI – which came in at 1.2% annual and 0.0% for October.  Note that it took a plug number outlier +1.2% pop in electricity to keep CPI from going negative.

    One would think if the economy were really all that healthy, especially with the flood of liquidity still being thrown at it, we’d see at least some inflation.  But, hey, we got the 10/20 crosses we were expecting in ES, SPX and VIX. So, the rally is safe…right?

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  • Follow the Leader?

    Almost every chart I follow is threatening a 10/20 cross, meaning we are clearly at an important threshold in the markets.  ES is out front, having already completed (no surprise) a bullish cross overnight. Will the rest follow through?

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  • There Will be Typos

    It’s a little known fact that if you’re trying to get over the pain of back-to-back knee replacements, you should have rotator cuff surgery. At least that’s what my horoscope said. As a result, my typing skills will be a little off this morning, which means my market insight might also be a bit off.  But, here goes.

    After tagging our IH&S target yesterday, ES tumbled back below the bottom of the channel which broke down back in late October. It’s sitting right there at this moment, meaning the bulls and bears have yet to sort things out.

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  • Vaccine!

    Pfizer announced the preliminary results of a study showing its Covid-19 vaccine has shown to be at least 90% effective. Simply put, this is a game changer: the first definitive signs that the pandemic which has killed 1.2 million worldwide can be controlled.

    S&P 500 futures are currently up 157 points to new all-time highs.Note that ES reached the target of the IH&S pattern established and then consigned to the dust heap in late October. The first order of business is to determine whether these prices can hold.

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  • In the Refrigerator

    While not official, it looks like the presidential election just might be in the refrigerator. Futures are off almost 1% after reaching our upside target (improbable as it was) yesterday.  But, the big action is on the currency front, where USDJPY has reached our next downside target and is contemplating more.continued for members… (more…)

  • The Latest Cringeworthy Rally

    Sometimes I cringe when I place a target on a chart. Such was the case yesterday when ES reached our IH&S target at 3425. If it kept going, it was sure to backtest the intersection of the broken rising white channel at the falling channel top. Was that likely in the midst of election and pandemic turmoil?

    Apparently so, because that’s exactly where ES ended up overnight.Although I tire of saying it, this is an important threshhold for the overall market – which has benefited smartly from a rescue maneuver that wasn’t even really necessary.

    continued for members… (more…)