pebblewriter

Tag: economics

  • That Escalated Quickly!

    It was just last Tuesday we asked “where’s the bounce?”  SPX had gapped lower and failed to rebound the way it always seems to has for the past year.

    We had watched a trend line dating back to Dec 29 (below, in red) break down, and were wondering about the small, white channel.  From Where’s the Bounce?

    After that, it gets a little messy. ES has an important backtest at 2773, which would be 2730 on SPX — nothing all that important in the vicinity. Below that, however, the white 2.24 at 2703.62 remains very interesting. It would be a hell of a drop from here: 117 points or 4.1%.

    The closer we got to 2703, the more plausible it seemed.  When we reached it today, though, SPX leveled off for only about 10 minutes before plunging lower.  Why?

    There are two primary reasons.  The first, of course, is VIX.  Was there a single session this past year when I didn’t bitch about the degree to which timely beatdowns in VIX were triggering algos to bid up stocks?  Doubtful.

    After VIX broke out of the falling channel on Friday, Our charts suggested it would reach 16.29 and, if/when that broke, 25.65. 

    When 25.65 broke, at approximately 11:48 this morning, it triggered an additional wave of selling from those very same algos which have learned so well to take their clues from VIX’s every twitch.  Live by the sword…

    The second reason was USDJPY and the ubiquitous yen carry trade.  As we noted in our last update [see: Jan 24 Update on USDJPY], the pair reached a channel bottom which represented important support.

    We’ve reached the bottom of the rising white channel which has held on four previous occasions since its origin in late 2012…Bottom line, USDJPY isn’t necessarily done until DXY is done. We had bounces at the .500 and .618, so an overshoot to the .786 at 108.90 or even the .886 at 108.16 is a distinct possibility.

    As it so happens, the white channel bottom didn’t hold.  Despite Kuroda’s desperate jawboning, USDJPY has continued to falter.  It backtested trend line resistance yesterday — all well and good.

    But, instead of catching support as it almost always does, it broke down.  At 11:56, it dropped through a tiny trend line of support.  Seconds later, when that TL broke down……it broke down through a larger TL of support.

    Bottom line, VIX and USDJPY are the two most powerful drivers of algos there are (oil occasionally takes the lead.)  When they were going strong…melt up.  The slightest hint that they’re not…melt down.

    SPX bottomed out yesterday at 2638.17 and closed a good 55 points below the 2.24 Fib.  While it’s always scary to see major Fibonacci support fail, there was an obvious effort to keep the uptrend alive.  Note the SMA100 crosses the bottom of the rising channel which was established with the Feb 11, 2016 lows.  In other words, it’s important.

    Significantly, the channel bottom was defined by the Nov 9, 2016 lows.  If that date sounds familiar, it was the election night in the US.  And, it was the last time a major effort was made to salvage important Fibonacci support. [see: Why the Trump Rally Is a Fraud.]

    It worked spectacularly, resulting in a 38% rally.  All it took was a 17% spike in USDJPY, a 55% rally in oil, and a 63% collapse in VIX.

    How about now?  The algos are primed and conditioned to respond.  I’m sure Jim Bullard still knows his way to Bloomberg’s studios.  Can TPTB manufacture another recovery?  For the answer, we need only to examine two similar, previous meltdowns: the night of the US election in Nov 2016, and August 16, 2007.

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  • The Same, but Different

    Yesterday started out with a VIX-driven pop that quickly fizzled and nailed our downside target before rebounding and hitting our upside target.  Since SPX closed right at resistance, it needed a boost overnight.  So, why not go back to the same clever trick that worked the day before?

    Yes, VIX’s red channel has broken down again.  And, the algos are eating it up… to the tune of +5 on ES.

    Will it pop and drop, again, or will this one take?

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  • Striking Distance

    This is day 8 of our membership promotion, running now through the end of the month for members and non-members alike. We’re offering a 25% rebate off the first month of Monthly and Quarterly auto-renew subscriptions. Annual memberships are available at a very substantial discount (rewarding those who act quickly!)

    Remember, the annual pricing is available to current members. If your current membership hasn’t expired yet, we’ll tack your new subscription on to your current expiration date. This can be especially valuable for those who took advantage of a special last year which offered a discount on the first year of a auto-renewing annual subscription.

    To sign up for a new monthly or quarterly subscription, CLICK HERE. For details on an annual subscription, drop us a line with the subject line “sign me up!”

    * * *

    After SPX’s break out on the back of a 37% plunge in VIX, it’s no surprise that the VIX has kept it within striking distance of new all-time highs.

    In dropping that 37%, VIX completed a deep retracement of its rise from 9.97 — the lowest it’s been since 2007 — to 16.28.  The .886 retracement is considered the last stop before prices drop through the previous lows.  Imagine: risk being considered lower than at any time since 2007!

    Yesterday, VIX spent the entire day dancing around that .886, with a dip below it every single time SPX started slipping.  The message to algos was that VIX was about to drop to new lows and, therefore, stocks should be bought.It was enough to keep SPX from completing a simple retracement from its .886 to its .786, or any meaningful dip until the final minutes of an otherwise nonsensical session.Today’s a new day, as CL is closing in on our 48.35-48.45 target and investors are no doubt anxious to express their disappointment with the lack of details provided for the fantastic, big-league tax cuts “revealed” yesterday.

    Despite the slight bump in futures overnight, our downside targets remain intact – starting with 2384.

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  • Fed Minutes: How Hawkish Are They?

    Markets tend to moves higher on Fed minutes days, even if the news isn’t all that positive.  It’s all about convincing investors that the FOMC has their best interests at heart — that all they’re worried about is making sure that stocks continue to rally.

    Today’s session is slightly complicated, then, by ADP employment which came in much higher than expected: 263K versus 175K.  Theoretically, this puts pressure on the FOMC to raise rates and/or trim their balance sheet faster than anticipated.  But, central banks have many tools at their disposal to ensure that the complication doesn’t become a problem.

    S&P 500 futures are up 6.5 points, but right to Fib resistance.  

    Can the Fed spin a hawkish set of minutes into something positive for stocks?

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  • Gold: Following the Yellow Brick Road

    I’m not a gold bug.  I’ve always thought the price is pretty heavily manipulated (long before it hit the headlines) and I guess I’ve avoided it on principle.  Looking back at my forecasts over the past year or so, that was probably a mistake.

    Since our December 14, 2015 forecast, GC has gained about 19% — not shabby.  However, if one heeded the forecasts offered with each subsequent update, the net return would have been over 80%.

    I’ve said many times, lately, that forecasting stocks has become a lot tougher than forecasting the various drivers of stock prices.  In the case of gold, it is obviously affected by the value of the US dollar, which is an important component of USDJPY — a key driver of equity algos.

    Thus, GC — like USDJPY, WTI and VIX — is one of those things that’s been relatively easy to forecast even though I’ve devoted only the occasional hour or two to its study.  Before we touch on today’s forecast, let’s take a look at the past year’s periodic forecasts.The numbers in the above chart correspond to the posts below.

    1. Dec 14, 2015 (GC: 1060):
      “If DX plunges further, as I expect it will, GC’s 4th bounce could be a doozy: 1150-1180 for starters, and 1286 after that.”  GC reached 1180 by Feb 8, topped out at 1287.80 on Mar 11.
    2. Mar 4, 2016 (GC: 1280):
      “I’d be very cautious in chasing GC at this point…acts like it’s reversing between here and 1286…take the gains…it could easily backtest the .618 at 1207.60.”  GC reached 1286 the next week, then reversed to backtest 1206.
    3. April 8, 2016 (GC: 1240):
      “If [gold] breaks above the purple midline [at 1270] then 1379-1380 is the next logical target…”   Gold reached 1377.50 three months later.
    4. July 7, 2016 (GC: 1361):
      “Our target range from April 8 was 1379-1380.  Yesterday’s 1377.50 was probably close enough.  If it can’t make new highs today, the next stop is the neckline at 1307..”  GC, which peaked at 1377.50 on Jul 6, dropped 5% to 1310 over the next 2 weeks.
    5. Aug 26, 2016 (GC: 1324):
      “…[there’s a] huge IH&S Pattern, the neckline of which is the former high at 1307ish.  If TPTB are serious about discrediting GC anytime soon it’ll involve getting it back below that [1307] support.”  GC tumbled to 1307, testing it three times before breaking down to 1243 on Oct 7.
    6. Oct 7, 2016 (GC: 1254): “…GC tagged its SMA200 and the bottom of a pretty good looking channel earlier — usually good for a bounce.”  GC bottomed the next day at 1243, bounced for a month, reached 1339 on Nov 9.
    7. Nov 14, 2016 (GC: 1227): …GC’s channel finally broke down two days ago and has potential to 1083 — a 12% drop from here.  What better way to finish the year out?  GC plunged 103 (8.4%) over the next month.
    8. Dec 5, 2016 (GC: 1175): If the .618 [1172.40] breaks down, then the next support isn’t until the red TL at 1130, followed by the .886 at 1083.50… GC reached 1130 on Dec 15.
    9. Dec 15, 2016 (GC: 1129): “GC is currently testing an important internal TL of support… a potentially important test…that could produce a bounce to the purple midline [at 1230] or the SMA200 — currently at 1278.”  GC reached the SMA200 at 1264.60 on Feb 27.

    After tagging its 200-day average in February, gold tumbled about 67, back below a key channel midline.  But, it is right back in the swing of things, having nearly reached the SMA200 a second time just yesterday.

    With all the discussion about what the Fed will or won’t do for the rest of the year, what’s next?

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  • Betwixt and Between

    SPX and ES managed to hold key trend lines and channels yesterday, bouncing from just short of our downside targets to exactly where we expected.  All it took was an 18.3% hammering of VIX — no problem for the Masters of the Universe (real subtle, guys!)

    But, there was no breakout.  There wasn’t even an overnight ramp job.

    This somewhat validates our theory about the oil and USDJPY two-step, meaning we should be looking for a big, sudden move in the currency markets as soon as today.

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  • Horseshoes and Hand Grenades

    There’s an old expression that says “close only counts in horseshoes and hand grenades.”  So, we spent most of the day yesterday wondering whether the day’s 2336.45 lows were close enough to our long-held downside target of 2335.34.The tag was marred by premature reversals in oil and VIX.  Did the guys working the algos not get the message?  Or, were they just a little over-eager?  Admittedly, it’s tough to nail a precise value in an index as unwieldy as the S&P 500.  But, they went to all the trouble of engineering a backtest of a key Fib level.  You’d think they’d care…

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  • Whistling Past the Graveyard

    Only a couple of years ago, central bankers became adept at repairing the damage done to stocks after big shocks.  That changed with Brexit, when the strategy shifted to pushing stocks as high as possible before the damage was done… and, still doing all the requisite ramping after the fact.

    They perfected the technique after the US election, turning a 5% overnight dump in the futures to a breakout above important resistance — where stocks remain, today.

    It made a bold statement — that the market was resilient enough to weather a sea change in the political landscape.  This week should be all about proving how resilient it is in a rising interest rate environment.  Judging from the mild drop over the past week, investors are quite unconcerned.

    Does this make sense, or are investors whistling past the graveyard?

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  • Bernanke Speaks

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    A new day, a new bounce.  As we discussed late yesterday, SPX has reached the bottom of the purple channel that’s guided it since 1343.  So, naturally, we’ll get some reaction — probably at least to the white midline at 1495.

    Whether it sticks or not is pretty much up to Ben.  Press conference at 10AM EST.

    The yellow channel on the 30-min RSI shows decent support here.  Looks like resistance at the purple midline, though, likely in conjunction with the white midline mentioned above.

    I’ll be surprised, though, if we don’t make it all the way back to 1497 for a proper back test of the H&S neckline – yellow dashed line.

    UPDATE:  09:40 AM

    That’s close enough for me.  I’m closing my ST long position taken yesterday (3:50PM update) at 1490 for a 6-pt gain and will let my core short position ride — for now.

    Many Bernanke pep rallies have left me feeling like a crash test dummy.  I’ve learned to keep my stops tight or stay on the sidelines all together.  For intrepid day traders, I suggest staying nimble.  A breakout or breakdown is to be expected.

    But, we did just complete a H&S Pattern, and that counts for something — as do the incomplete harmonic patterns.  We’ll take a look as soon as the Bearded One is done scolding Congress for messin’ up a good thing.

    UPDATE:  12:30 PM

    Equities are clinging to gains following Bernanke’s testimony — which was mostly a non-event.  IMO, he said nothing to help the bulls’ or bears’ case, which means Italy and the sequester will likely drive prices over the next several days.

    We should continue to see periodic bounces over the balance of the day, but the onus is on the bulls now to turn the trend.  We’ll keep an eye on the 5 and 15-min RSI charts to determine breakouts that merit an intra-day long, and revisit the daily charts to get a sense of intermediate-term possibilities.

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  • The Euro is Doomed

    From Bloomberg, reprinted in its entirety:

     

    Saxo Bank CEO Says Euro Is Doomed as Currency Woes Resurface

    By Mahmoud Kassem – Feb 18, 2013

    Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S, said the euro’s recent rally is illusory and the shared currency is set to fail because the continent hasn’t supported it with a fiscal union.

    “The whole thing is doomed,” Christensen said yesterday in an interview at the bank’s Dubai office. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.”

    The euro has gained 8.2 percent versus the dollar in the past six months and reached as high as $1.3711 on Feb. 1, the strongest since Nov. 14, 2011. The European Central Bank forecasts the euro-area economy will shrink 0.3 percent this year and ECB President Mario Draghi said on Feb. 7 that the currency’s gains pose a risk for growth and inflation.

    While the euro has strengthened, the economies of Germany, France and Italy all shrank more than estimated in the fourth quarter. Ministers from the 17-member euro area met during the week to discuss aid to Cyprus and Greece as a tightening election contest in Italy and a political scandal in Spain threaten to reignite the region’s debt crisis.

    “I’d be a bigger seller of the euro at anything near 1.4,” according to Christensen, who said he isn’t making any speculative bets against the currency.

    The euro declined 0.2 percent to 1.3332 against the dollar, falling for a fourth day.

    Shrinking Investment

    France is grappling with shrinking investment, job cuts by companies such as Renault SA and pressure from European partners to speed budget cuts. While Germany expanded 0.7 percent last year, France posted no growth and Italy probably contracted more than 2 percent, the weakest in the euro area after Greece and Portugal, according to the European Commission.

    The economy is on the brink of its third recession in four years and the highest joblessness since 1998. Prime Minister Jean-Marc Ayrault said Feb. 13 the country won’t make its budget-deficit target of 3 percent of gross domestic product this year as the economy fails to generate growth and taxes.

    “Another possible fallout is getting rid of some of the countries that are being ruined by being in the euro, notably the southern European economies,” Christensen said. “People have been dramatically underestimating the problems the French are going to get from this. Once the French get into a full- scale crisis, it’s over. Even the Germans cannot pay for that one and probably will not.”

    Cyprus Election

    Cyprus has been shut out of debt markets for nearly two years with lenders including Bank of Cyprus Plc and Cyprus Popular Bank Plc losing 4.5 billion euros ($6 billion) in Greece’s debt restructuring last year. The nation is holding a presidential ballot today where the economy is the main issue rather than reunification of the divided island.

    Spanish and Italian bonds rose last week as debt sales allayed concern the nations may struggle to raise funds before Italy goes to the polls to elect a new prime minister. Yields on Spain’s 10-year bonds fell for the first week in five as European Central Bank President Mario Draghi said the country had achieved “enormous progress” in its reforms. The spread between Spanish 10-year bonds and comparable German securities decreased two basis points to 354 basis points.

    Spain, which plans to sell three- and nine-month bills tomorrow and bonds maturing in 2015, 2019 and 2023 on Feb. 21, faces a sixth year of slump. Output is forecast to contract for a second year in 2013 with unemployment at 27 percent amid the deepest budget cuts in the nation’s democratic history.

    Record Debt

    Public-sector debt is at record levels, having more than doubled from 40 percent of gross domestic product in 2008. The European Commission, which is due to update its forecasts this week, sees it rising to 97.1 percent of GDP next year.

    “It’s the political world that has been extremely supportive of the euro, not for economic reasons but for political reasons,” said Christensen, a long-time critic of the single currency who now lives in Switzerland.

    TPG Capital, the private equity firm started by David Bonderman, bought a 30 percent stake in Saxo Bank in August 2011 for about $560 million. Christensen and co-founder and co-CEO Kim Fournais maintain majority ownership of the company.

    The Hellerup, Denmark-based bank said in August that first half profit dropped to 44 million kroner ($7.8 million) from 346 million kroner a year earlier.