ZN broke down from its rising red channel back on the 6th. Since then, it has found support in a falling channel – from which it is now threatening to break down.
This is a moment of truth for bonds and the many correlated assets such as GC, shown above. Stocks might not be amused.
continued for members… (more…)
Today’s post could be an extension of yesterdays, with more beneficiaries of the shutdown such as Target and Lowes reporting big beats. Winners and losers.
Curiously, ES failed to make a new high yesterday even thoughy SPX briefly rose above its February highs.
You’ve always had to worry about predatory traders and specialists trying to catch momentum traders offsides, pushing above resistance in order to stop out shorts and draw in fresh meat. These days, the players have expanded to include predatory HFTs, algos, central banks, the US Treasury, politicians, etc. The list of “interested parties” is long and distinguished, and most of them have access to plenty of free capital.
So, as we always ask when SPX reaches new highs: breakout or headfake?
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As noted back on Feb 21, the EURUSD has broken down from its rising channel (white) and accelerated to the downside, breaking the Jan 4 1.2996 low and the psychologically important 1.30 level.
The intersection of the purple .618 and two white channels at 1.38 will have to wait (till my next visit across the Pond, no doubt.)
Losing the rising white channel hurts momentum quite a bit, but it’s the drop back through the 75% line on the falling white channel that represents the bigger problem for the pair.
This channel dates all the way back to Dec 06. Reaching the top for the third time is still possible, of course, but it’s that much harder now that the pair needs to retake the higher channel line and mount a fresh attack. Suppose it doesn’t?
I’ve redrawn the falling white channel as red and will lower its top (for now) to reflect that possibility. I’ve also sketched in a more relaxed rising channel (light blue) that reflects potential channel support at current prices (the intersection of the falling red .75 and the rising light blue .25.)
I don’t know whether the pair needs to retest the falling white midline or not. The bottom of the new light blue channel intersects with the red .75 in mid-March. Also there is the .25 of the very large rising purple channel, which provided a huge bounce in Jun 2010. It’s easier to see in the LT chart below.
Here’s the really big picture.
Several months ago, I noticed that the entire chart looks a bit like an expanded replay of the little dip way over to the left. Playing with channels, I got some interesting results.
The huge rising white channel seems to matter quite a bit. Note the support it offered from Aug 93 – Jan 97. When it broke, the pair fell precipitously to the midline, shedding .15 in about six months.
The midline offered support again through Feb 99, then completely fell out of bed (equities maxed out in Mar and Aug 2000.)
EURUSD spent 18 months in the penalty box confirming the channel bottom until finally breaking out early in 2002. It nearly reached the midline again two years later, and spent almost 4 additional years grinding higher – reaching 1.60 at a little over the 1.618 before zigzagging lower to its present level.
We’ll circle back to these charts Tuesday and take a look at the analog’s implications for the US dollar and equities.
To be continued…
From Bloomberg, reprinted in its entirety:
Saxo Bank CEO Says Euro Is Doomed as Currency Woes Resurface
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.
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 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.
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.
It was thoughtful of eurostat to include the US in their chart. Funny, that’s not the chart one would picture based on the MSM’s steady drumbeat of “recovery!”
Germany, which had previously taken an ambivalent attitude about the soaring euro, might change its tune following its worst GDP print since Q408. The main culprit? Exports, which fell 15.4% from November – the worst monthly decline since 2007 – and 5.7% YoY. Straight from the Bundesbank:
Housing figures for Q4 should be out soon, but look for a continuation of the slide.
A falling euro might increase exports, but make oil even more expensive – the same energy/export conundrum in which Japan finds itself.
UPDATE: 12:20 PM
SPX continues to move sideways. The H&S pattern completed yesterday busted, completed again, busted, and is working on completing a third time. This is a very ugly pattern, with hardly anything normal about it — especially the 3 right shoulders.
It should have already paid off yesterday with a trip down to 1511ish. The red channel I drew yesterday is holding nicely so far, but a departure to the downside this morning was quickly erased. It even fell through the larger red channel midline but rebounded.
Clearly, the bulls are trying valiantly to defend the 1520 level. But, can they?
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Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
― Lewis Carroll, Alice’s Adventures in Wonderland
The market never ceases to amaze me. Despite all the ingredients being in place for a sizable correction, it’s sailing along as though everything were copacetic.
Negative divergence abounds. The correlated currencies are all selling off. Gold is down. Silver is down. Even AAPL is down. Numerous indices have completed bearish Harmonic or Chart Patterns.
The Fed let slip yesterday that the adrenaline drip will soon be removed — leaving banks without a buyer for their underwater mortgages and the stock market without any downside protection. They’ve finally admitted what we’ve all known for some time: QE’s effect is diminishing, and the risk is growing.
The budget showdown is still ahead (the part of the fiscal cliff that really matters.) The most fractured Congress in modern history, which utterly failed to resolve the important issues, will now turn the task over to an arguably more partisan Congress.
The country’s AAA credit rating is hanging by a thread at both Moody’s and Fitch. A downgrade by either would require massive selling by institutions which require at least two AAA ratings in order to comply with their investment policies (especially insurance companies.)
Unemployment has reportedly declined, but only because we no longer count the dejected job seekers who are leaving the work force in droves. Include them, and the actual picture is startlingly bleak. (source: Shadowstats.com)
The EU is officially back in a recession (though it never really left.) Its banks are being kept afloat by the ECB/ESM, which is exchanging (somehow AAA) paper backed by shaky sovereigns for junk sovereign debt as fast as it can. Meanwhile, unemployment continues to soar.
The big 2013 headline that isn’t (yet) is the global derivatives debacle: $700 trillion — over 10 times the global economy — of unregulated, unpriced, unreported private contracts which have been sliced and diced so many times that no one has the slightest notion what the risk really is — except that it dwarfs the capital of the banks that hold it.
In my opinion, the only things keeping the economy and the market afloat are the unrelenting screech of MSM fairy-tale “good news” and the Bernanke Put (the Fed’s money printing and plunge protection operations.)
As long as these two factors can outweigh the negative fundamental picture, the market stands a good chance of rising. Take one of them away, and the resulting crash will be swift and severe.
That said, I’ve spent the past two days assessing the current state of our analog and forecast. I’ve quantified it as best I can in an attempt to eliminate my admittedly negative bias. I’ll lay it out over the next several hours, a few charts at a time.
If you’d rather skip to the punchline, I’m still bearish. In the absence of a push through 1474, I think we’re in for a sizable correction and remain short from 1462. If 1474 is broken, everything changes.
For members who enjoy getting their fingers dirty, stay tuned.
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About an hour ago, we completed a Bat Pattern which is nestled inside of a Bat Pattern which is nestled inside of a Bat Pattern.
UPDATE: 3:15 PM
RSI channels show how much is riding on this moment. A push through the top of the purple channel brings the red channel mid-line into play. Could it correlate with 1474, or maybe just the next channel line on the intra-day?
I’m not sure. The intra-day 1.272 is 1468.17 and the 1.618 is 1471.61. A double-top would be a real nut-buster.
All I know is there’s still negative divergence across the board, so I don’t expect the red mid-line to be broken.
My apologies for the delay in getting the forecast charts up. They’ll have to wait until after the close. I’ve been distracted by the melt-up, checking and re-checking my charts to see what I might be missing.
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The US dollar remains in a rising channel within long-term channels that point to very different outcomes.
The rising white channel intersects just ahead with the larger falling white channel upper bound, the rising red channel mid-line and the 75% bound of the falling purple channel.
Whether the red or purple channel carries the day will depend largely on whether the ECB or the Fed can deflate its currency the fastest.
But, the intermediate-term picture is clear: if DX can hold the white channel, the next move should be much higher.
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If you found yourself scratching your head today, you’re not alone. SPX finally shed a couple of points — the first loss in seven forgettable sessions. VIX reacted by selling off by 1.04. Huh? DX followed suit, settling 0.18 after being down as much as .66 from Friday’s high. Come again?
I wrote about VIX last Thursday: “The smaller harmonic patterns point to potentially lower values, so look for a drop to the mid-13s if the move up is contained.” But, never in my wildest imagination did I anticipate said drop in the absence of a run up in stocks — let alone a drop in stocks!
Whenever I’m vexed by VIX, I turn to VIXandMore.blogspot.com. I have no connection with this wonderful blog, but am frequently impressed by the depth of expertise. If you’d like the full explanation, click on the link above. But, the short version is that today was VIX roll day, and the two components of VIX (VIN and VIF — really) conspired to significantly depress VIX. One mystery solved.
As for the dollar, it broke the rules Friday — up almost .30 on a day when stocks were also up. So, today was perhaps a make-up call. The EURUSD is showing strength after completing a Crab pattern (in red, below) last week. After retracing .618 of the Jun 29 to July 24 drop, the pair threatens to complete a Gartley pattern (in purple.) The .786 (1.2552) intersects with a major channel around the end of August.
BTW, the Gartley needn’t necessarily pan out. As I noted a couple of weeks ago, there’s a very strong line of resistance at 1.24 that was broken back on July 5. Closing up above it again could take some doing (or, at least a favorable decision by the German Constitutional Court.)
I have many more charts to post, but am running out of juice. I’ll leave readers with one last chart that represents the whole lot of them. The ETF UKX is approaching its Fan Line off the 2007 high as well as the .886 Fib retracement level.
Last week, it came to within a very manageable 0.7% of tagging both. Yesterday, it closed off a bit, so it now needs 1.17% more to complete its Bat Pattern at 590.04. A number of euro zone countries report GDP tomorrow. If numbers come in at or above expectations, don’t be surprised to see FTSE go up and complete the pattern.
More in the morning.
The euro is again hanging by a thread. Recall it already broke down from and is back-testing a big channel (solid red, below) that dates back to 1997. Its weekly RSI, however, looks like it could have some life left in it.
First, I should make clear that I think the euro zone is toast. The only thing holding it together right now is Germany’s indecision as to whether it’ll save money in the long run by going its own way.
But, one of these days, investors will turn their attention back to the US dollar. When that happens, there’s a fair chance that the American problems will be judged to be every bit as serious as the EZ’s. In the end, it’s a dirty shirt contest and either currency could take first prize — especially if everything starts melting down — stocks, bonds, metals alike.
With that said, let’s look at the charts. (more…)
While many others are dissecting the tussle in Brussels for hints as to the union’s future, I thought it would be a good time to revisit the euro’s chart.
Our last forecast [June 10: Currents, See?] forecast a run up to 1.28ish by June 15, followed by a dip to 1.25 and return to 1.2875 around mid-July.
With the pair at 1.2638 after the latest “Spain is fixed” rumor, I posted:
“I suspect the euphoria over the Spanish bailout will be relatively short-lived. After all, putting the rest of the eurozone in harm’s way seems like a better way to get them downgraded than it does Spain upgraded.”
Sure enough, the ramp fell apart and the pair was trading at 1.2441 by the next day. It took the stuffing out of the next leg up, leaving it a little short of our 1.28 target at 1.2746. Likewise, the next leg down was a little deeper than expected.
As I write this, the Brussels bunch is just sitting down to cappuccino, positioning and posturing for the battle ahead. In the end, I expect the Germans will come through for their less fortunate neighbors — kicking and screaming, of course. Yes, it sucks for them. But, I don’t see that they have a choice. It’s a situation only the Borg could appreciate.
Considering the likely sturm and drang, it’ll be a sheer miracle if the markets behave as I anticipate. But, let’s take a look anyway.
continued…
