pebblewriter

Author: pebblewriter

  • Why the Market Didn’t Correct Today

    Hint: it’s the same reason the “market” hasn’t corrected much at all for the past six weeks.  And, no, there’s no free lunch involved.

    The day started with some tragic news out of Brussels.  ISIS terrorists attacked innocent civilians at the airport and a metro station, killing dozens and wounding hundreds.  Brussels is the de facto capitol of the EU, so the attack understandably sent investors scurrying for cover.  Only, it didn’t last — thanks to crude light (CL.)

    For those who weren’t watching, CL spiked almost 3% in about 90 minutes on absolutely no news whatsoever.  Why?  Because, stocks were selling off.  That’s it.  If you don’t believe me, read on.

    2016-03-22 CL 5 0807 SPX had dropped almost 10 points (0.5%) in the first 5 minutes of trading.  This took it directly to a trend line connecting the last two lows (3/16 and 3/22) seen below in red.  It dithered here for a few minutes, then broke through the TL and started lower — seemingly to backtest a rising channel line or the 200-day moving average.

    2016-03-22 SPX 5 0807But, at exactly the same time that SPX reached that trend line, CL swung into action.  It reversed higher, pushing up through its short-term moving averages and, ultimately, through two falling TLs of its own.  It didn’t stop until it had topped yesterday’s highs.

    This would normally be highly unusual, given that CL had just broken down through a TL (from Mar 15) and reversed at a key Fibonacci level (the white .618 at 41.42.)

    2016-03-22 CL 15 0837But, it is most decidedly not unusual for CL, which has taken over from USDJPY as the single most influential driver of equity algorithms.  Needless to say, SPX reversed back above its broken TL and went on to register new highs for the fifth session in a row.

    How it Works

    Want SPX to stop dropping, or even reverse higher?  How about popping up through important overhead resistance?  All it takes is a sudden spike higher by CL.  The chart below illustrates how commonplace it’s been in the last few sessions.2016-03-22 SPX 1 0837The first instance on the chart above was when CL gapped higher in order to get SPX up past its SMA200.  There were many other instances when CL either reversed or at least propped up SPX (the yellow arrows.)

    Occasionally, an intraday SPX backtest of a Fib is prompted by a CL drop.  But, for the most part, CL’s drops are limited to after-hours — when S&P 500 futures are easily propped up in the light volume.

    When the “market” reopens in the morning, CL has already been reset and is ready to spike higher all over again in order to support SPX for the next 6 1/2 hours.  It’s been going on for months.  But, it’s never been more obvious than since our bottom call on Feb 11 [see: USDJPY Finally Relents.]

    The Unbroken Broken Channel

    CL traced out a rapidly rising (white) channel from Feb 11 to Mar 14, at which point the channel broke down (the red arrow.)  Normally, this would portend a reversal of some significance.

    2016-03-22 CL v ES 5 0931This breakdown occurred as SPX had finally climbed back to its 200-day moving average — a 10.5% rally off its Feb 11 lows.  Again, normally we’d see a significant reversal upon reaching major overhead resistance such as this.  Combined with the CL channel breakdown, it looked like a sure thing.

    Instead, it was limited to a minuscule 13 points.  And, few traders would have had the nerve to participate.  It came on a gap lower following a 3-day, 54-pt rally that saw SPX slice through the SMA100 without blinking and close above the SMA200 two days in a row.2016-03-22 SPX 60 1500Why such a puny reaction?  First, CL not only cut short its decline, it pushed back above its SMA20, SMA100, a TL from June 2015 and the midline of a channel from Oct 2012.  Second, just for good measure, it even gapped right back into the channel from which it had broken down (the yellow arrow above.)

    After already spiking 49.6% (in the face of obviously deteriorating fundamentals) between Feb 11 and Mar 11, this latest CL spike amounted to another 18.2% off the Mar 15 lows.  In those five sessions, it lifted SPX a total of 51 points (2.54%), with each day seeing a new higher high.

    What Happened Today

    Though it’s not particularly unusual, today’s action clearly illustrates the manipulation going on.  Note that CL broke down again from its rising white channel this past Friday.  It seemed destined for a backtest of its 10-day moving average (at least) when it was pressed into duty to prop up SPX.

    2016-03-22 CL 5 1500It bounced around a bit while SPX found its feet, then zigzagged higher until SPX backtested a little H&S neckline (purple.)  When SPX faltered there, CL suddenly popped up through a TL that had connected its overnight highs.  With SPX threatening to reverse lower, CL suddenly broke out through a TL (white) that connected the highs made since last Friday.  This drove SPX up over the neckline.

    With SPX back on track, CL was free to fall back below the white TL.  And, it was time for USDJPY to take over. 2016-03-22 USDJPY 5 1500

    USDJPY had sprung to life just as SPX had reached the neckline, zooming back to the top of the channel whose bottom it had briefly broken as the terrorist attack hit the newswires.  It was a strong 1% move in about 10 hours, and involved USDJPY breaking out through a TL (red, dashed) it had established overnight, and again through a TL (white) connecting Monday’s highs.

    But, after reaching the top of the rising red channel, USDJPY had nowhere to go.  With oil prices having increased so much over the past month, the Japanese need a strong yen to compensate — hence USDJPY’s flatlining since Feb 11 (there’s that date again.)2016-03-22 USDJPY v SPX 5 1500SPX saw USDJPY’s predicament, and started back down — only to be rescued again by CL, which not so coincidentally maintained an uptrend until the close.  At that point, it was free to reset — which it did.  It’s not free to do it all over again tomorrow if TPTB deem it desirable. 2016-03-22 CL v SPX 5 1500

    What Now?

    Speaking of TPTB, who’s behind this daily manipulation?  Some blame the big banks, which have much at stake in the energy sector.  I favor the central banks themselves, especially the BoJ.  It has a huge equities portfolio.  By my calculations, it costs about 5-10 cents on the dollar to prop up SPX with CL — a bargain if there ever was one.

    I firmly believe that central banks colluded to crash oil in order to keep the yen carry trade alive.  But, it got out of hand.  Oil companies started suffering.  More importantly (to the central banks, anyway) the banking industry started to suffer.  There came a point (probably about Feb 10) that they decided it was time for prices to recover.

    This was tricky, because with a terribly devalued yen (sky-high USDJPY) higher oil prices were a burden Japan couldn’t bear.  This explains why USDJPY has repeatedly returned to the Feb 11 lows (a more valuable yen) while CL and, hence, SPX have soared.2016-03-22 USDJPY v ES 60 1500How long can this go on?  It pretty much depends on us.  The stock “market” has rallied nicely, which benefits those with substantial equity portfolios.  But, the 64% spike in CL since Feb 11 amounts to a tax on everyone else.  The average price of regular unleaded gas has risen over 18% since Feb, making a mockery of central banks’ relentless “we need more inflation!” mantra.

    When rising gas prices are again deemed a problem, or start to show up in official inflation data, CL’s run will be over — not a moment sooner.  At that point, look for the yen carry trade to return in all its glory.  Or, maybe by then, the ECB will have established the euro carry trade.  Or, maybe the whole steaming pile of crap will implode under its own weight.

    As always, there will be winners (the “haves”) and losers (the “have-nots.”)  Guess which constituency TPTB will bend over backwards to protect?

     

  • Charts I’m Watching: Mar 22, 2016

    CL is selling off and the yen is strengthening this morning following the despicable terrorist attacks in Brussels.  ES dropped as low as 2028.75 and is currently attempting to maintain a TL off the Mar 10 lows.  But, the long-overdue consolidation has probably arrived.2016-03-22 USDJPY 60 0610continued for members… (more…)

  • Charts I’m Watching: Mar 21, 2016

    CL’s rebound since our Feb 11 bottom call [see: USDJPY Finally Relents] has been nothing short of spectacular. 2016-03-21 CL daily SMAs 0617 It’s not surprising that it has brought SPX all the way to the bottom of our target range a little ahead of schedule.  As we noted in last week’s forecast update, our 2050 upside target raised a few eyebrows when we first posted it on Feb 26 [see: Cornered Bankers Resort to Ramping.]

    Now that we’re here, we have to wonder if CL has the legs to take it further.  If it pauses here at the white .618, how will TPTB get SPX over the hump?

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  • Quick Review: Mar 17, 2016

    I’m traveling for the remainder of the week, so am not able to post intraday charts.  Here are a few, however, that should serve as quick, big picture references.

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  • FOMC Takes a Spin

    Screen Shot 2016-03-16 at 7.37.18 AMFollowing disappointing efforts by counterparts at the ECB and BoJ, it’s Yellen & Co’s turn to attempt to reinvigorate the stock market economy.

    Will they or won’t they raise rates again?  Most say they won’t.  A few brave souls say they will.  The “market” seems confused.  The key is the current position of USDJPY, CL and SPX/ES.

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  • The BoJ Stays with What’s Not Working

    The BoJ’s latest pronouncement is probably the closest we’re ever going to get to “we have no idea what we’re doing.”  Bottom line, it’s more of the same — but, without the language indicating they could go even more negative on rates.

    The USDJPY sold off (but, only to the closest and easiest TL to defend.)2016-03-15 USDJPY 60 0600Futures are therefore taking it on the chin, and look likely to tag yesterday’s downside targets.

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  • The Big Picture: Mar 14, 2016

    When we quietly placed a target of 2000 on the big picture charts in mid-February [see: Cornered Bankers Resort to Ramping], 200 SPX points ago, it raised a few eyebrows.  How in the world, given all the troubles facing global economies, could the market rally 10% in such a short time?

    2016-02-22 SPX 60 0615It actually reached 2000 a few days before projected.  And, the answer to the “how” question then, as now, was CL and USDJPY.  As we pointed out in The USDJPY Finally Relents, USDJPY and CL were both testing critical, long-term support.  Had they not bounced, stocks would have dropped precipitously.  But, they did.

    And, now we face the question of whether SPX will reverse strongly or merely take a breather here.  With Kuroda announcing any BoJ policy changes tomorrow and Yellen doing the same on Wednesday, “markets” remain in the hands of the central planners.  Wouldn’t it be nice if they’d just publish future stock prices while they’re at it?

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  • Update on XLF: Mar 14, 2016

    Once in a while a forecast comes together so nicely that people accuse you of having an unfair advantage.  From one of our members on Friday:

    Are you sure you don’t have a time machine to travel to the future?  On Feb 10, you had a upper target of XLF at 22.51.  The actual close today is 22.49.

    In all the excitement over the broader market, I haven’t paid much attention to XLF since Feb 10, when it closed at 20.28.  From that update:

    Looking ahead, I’ve identified a few potential targets.  It think the next downside target has to be the purple .886 at 19.26 where it intersects with an expanded falling red channel midline in the next couple of days.

    2016-02-10 XLF daily 1000If it fails, the white .382 and that midline intersect in mid-April.  This would also complete a pretty clear C=A corrective wave.

    If it holds, the immediate upside case is pretty much limited to a backtest of the broken yellow TL and white channel bottom at 22.51 in mid-March.

    XLF bottomed out the next day at 19.53, 0.27 from our downside target.  It then rallied rallied over the next month, reaching 22.52 on Friday, just .01 from our upside target.2016-03-13 XLF daily 2100It’s a nifty 15.3% return based solely on chart patterns, harmonics and technical analysis — and, a sharp poke in the eye for those who insist technical analysis doesn’t work.

    Of course, nailing a target is a double-edged sword.  There’s the joy of a job well done, but the fear of badly botching the next forecast.  With that said, we’ll take a look at what to expect.

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  • Why are Stocks Rallying?

    The bounce off the Feb 11 lows has puzzled many investors.  But, it’s not all that complicated.

    As more and more traditional investors and traders abandon investing, markets are increasingly driven by complex algorithms.  The most powerful is the yen carry trade [what’s this?], as seen in moves by the USDJPY.  The S&P 500 futures (ES) are shown for comparison purposes.2016-03-11 USDJPY v ES 0601A close second is an algorithm driven by oil prices — specifically CL futures.  We’ve been following this for a long time — first noticing the effect in the Jan and Mar 2015 rallies and writing about it frequently, including this Oct 2015 post: What Really Drives Stock Prices?2016-03-11 CL v ES 0600If you want to know, for instance, why stocks suddenly reversed off their post-Draghi plunge, look no further than the short-term CL chart.  With ES in the midst of a 40-pt swoon, CL suddenly reversed (the yellow arrow.)  In rather short order (and, after USDJPY finally reversed) stocks got the message and rose along with them.2016-03-11 CL v ES CU 5 0618Ditto for last night’s ramp job: all CL and USDJPY.  It should be enough for SPX to top harmonic resistance at 2009.13 this morning.  It will blow up a number of bearish patterns, enabling the rally to continue unmolested.2016-03-11 SPX 5 0618Don’t take my word for it.  Former Fed President Dick Fisher, in a candid interview on CNBC earlier this week, confirmed what many have been sensing for years:

    “…we injected cocaine and heroin into the system, and now we’re maintaining it on Ritalin….This has been a hell of a rally.”

    Today, the injections are taking the form of higher gas prices.  On February 11, I filled up my wife’s car with regular grade unleaded at $1.94/gallon.  Today, that same station is selling gas for $2.15/gallon.

    That 11% increase pales in comparison to the 50% increase in CL over the same period.  But, for anybody on a tight budget, it’s a bitter pill to swallow — particularly when they enjoy few of the benefits of the wealth effect Fisher and his cronies are now crowing about.

    No doubt, the Have-Nots’ sacrifice (think of it as another gas tax) is much appreciated by those whose portfolios have increased in value since the Feb lows by — come on, you already know the answer!  — exactly 11%.

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  • The ECB’s Kitchen Sink Approach

    Having been chastised in the past for not doing enough, today the ECB threw a little of everything at the problem of falling stock prices inflation that’s too low.  The Special High Intensity TLTRO (S.H.I.T.) in particular is nothing but a giveaway to banks who are, of course, the power behind the throne and the primary beneficiaries of the measures.

    The result was a EURUSD that tested its former lows, only to bounce back to higher highs.  Will there ever come an ECB announcement that isn’t front-run by every trader on the planet?2016-03-10 URUSD 15 0615The question is often asked: “are central banks out of ammunition?”  Wrong question.  The correct question — the only one that matters — is whether they remain willing to manipulate the real drivers of the “market”: currently USDJPY and CL.

    Futures initially spiked, but have fallen back to barely green on the day, clinging for life to the SMA100.  Part of the problem was that the spike took ES up to the .618 (2007.37) of the fall from the May 2015 highs to last month’s lows.  Poor planning on the algo-masters’ part.  But, the day is young.2016-03-10 ES 5 0630continued for members… (more…)