pebblewriter

Tag: EURUSD

  • Quad-Witching: Sep 21, 2018

    We’re off to a quiet start so far, with futures up a few points in sympathy to rising oil and gas prices — both up over 1% — and, a bounce in the dollar index.

    OPEC is slated to meet over the weekend, and it’s not unusual to see oil rally in advance of a policy meeting.  It’s also not unusual to see the leader of the free world resort to Twitter to express his dissatisfaction with oil prices which are rising largely as the result of his own policies.

    Speaking of which, Walmart is the latest (and largest) retailer to warn of higher prices as the result of Trump’s proposed tariffs.

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  • It’s a Wonderful Market

    SPX and ES had no trouble reaching our initial downside targets — a backtest of their January highs.  We wondered, however, whether the SMA20s, loitering just below, might come into play.

    Sure enough, ES tagged its SMA20 with ease.  But, emini traders strongly resisted a drop through the SMA20 – bad mojo, don’t you know.

    So, SPX only reached 2867.29, just shy of the SMA20 at 2866.27. And, faster than you can shout “help me Clarence!” SPX bounced the 16 points we anticipated, just like it did on Wednesday.

    It was a near miss..or, was it?  As we discussed on Tuesday…

    One little trick we often see on days when it’s difficult to convince the machines to sell/short down to an obvious bounce point such as the SMA10 is to drive the price merely to where the SMA10 will be tomorrow.  The SMA10 will likely increase by another 5 points tomorrow, so getting within 2-3 points is potentially “good enough.”

    As luck the algos would have it, today’s SMA20 came in at…wait for it…2866.27.  January highs and SMA20 were both tagged.  So, all is well, right?  Not so fast.  Futures are currently off 10 points, banks are tanking, oil and gas are slipping, FB is scurrying toward the basement and TSLA has tumbled 15% since Tuesday’s short call.

    In the distance, sirens.  A mob of nervous investors crowds the door.  Might the Building & Loan actually be in trouble?

    Thanks to overeager algos, the S&P 500 has thus far ignored the threats of tariffs, political turmoil, emerging market meltdowns, rising interest rates and historically high multiples. None of that matters as long as corporations can borrow cheap and repurchase their own shares, VIX can be hammered when necessary, the dollar continues rising and oil/gas prices don’t crash.

    If any of those support mechanisms falters, however…  Well, we’ve seen what can happen.  Keep an eye on 2867.29.

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  • A Backtest or More?

    Today should shape up as a battle between holding a much-cherished round number (SPX 2900) and backtesting solid support (the January highs.)

    The futures are off about 5, with yesterday’s downside target of 2878.50-2881.95 still looking good — if SPX will relinquish 2900.

    Much will depend on the yen, which is strengthening in the midst of the EM turmoil…

    …and the 10Y, which has been in a holding pattern for months.  It looks ripe for a breakdown, but that would almost certainly invert the curve and usher in more than a backtest.

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  • How Not to Manipulate Stock Prices

    Sometimes you just can’t catch a break.  TSLA shares rose from 22 in 2012 to 387 in 2017 — helping drive Musk’s net worth to well over $20 billion.  But, the shares have since formed a triple top, failing to top 390 and coming perilously close to breaking down.

    This isn’t the first time Musk has faced such a challenge.  The stock spent three years trying to crack 290 – the red trend line below.

    We’ve documented past interventions — which have, by and large, been successful.  Musk’s well-publicized $25 million open market purchase (the white arrow) on June 12-13, for instance, saw the stock gap past the .618 Fib level and a trend line connecting recent highs.

    It was a nice gesture and helped divert attention from the mass layoffs announced the day before.  But, it didn’t take long for investors to realize that while $25 million is a lot of money to most people, it represented only 1% of Musk’s net worth.  And, it increased his holdings of the common stock by a pittance (0.2%.)

    It’s pretty obvious why Musk did it.  After breaking above 290 in April 2017, the stock had fallen back below it in March 2018.  The 200-DMA, rising white channel, and purple trend line all broke down in the process.

    After a miraculous, tweet-aided recovery, Musk got the stock back above the red trend line.  But, he needed it above 390.  It was not meant to be.  Too many missteps, too many worrisome headlines.  The best it could manage was a backtest of the broken white channel and the .886 retracement of its drop from 389 to 244.

    The stock slipped back below the red TL and 200-DMA, eventually bouncing off 290 yet again in late-July on news of a major new factory to be built in Europe.  The company’s earnings call a few days later featured a well-behaved Musk, a revenue (obviously not income) beat, and a promise not to float additional additional shares.

    Musk: We do not — we will not be raising any equity at any point, at least that’s — I have no expectation of doing so, do not plan to do so … And we certainly could raise money, but I think we don’t need to and we — yeah, I think, it’s better to — it is better discipline not to.

    Again, the stock gapped higher — back above the 200-DMA and the yellow trend line.  But, the naysayers weren’t having any of it.

    Despite having produced the promised number of Model 3’s, the company was dogged by reports of quality issues and was losing money on every sale — even though these were the higher end models with potentially larger profit margins.

    This was apparently the point when desperation set in.  As we discussed at the time [see: Is the Pressure Getting to Elon Musk?] it was fairly obvious to any competent chartist that Musk’s going-private tweet — like all the others — was designed to get the stock over the latest hump.

    It didn’t take long for Tesla watchers to question the deal.  The financing was supposedly secured, but no one stepped forward.  The board seemed genuinely alarmed.  Shorts launched lawsuits.  And, the SEC announced an inquiry.

    The latest rally ran out of steam at 387 – just shy of the September 2017 highs.  The stock tumbled back to the red trend line yet again.  It bounced, but that was before Friday night’s (11pm Friday night, following Thursday’s decision) admission that the going-private transaction was dead in the water.  As of this morning, the stock is heading back toward 290.

    Despite my cynicism, I’m rooting for Elon and Tesla.  We obviously need alternatives to carbon-based transportation for many reasons.  But, the stock is at these lofty levels based on the (aging) premise that it’ll soon be self-funding and turn a profit.

    The shorts are right to question this premise.  But, anyone who shorts at these levels, before the stock breaks down below the tangle of support at 290ish is ignoring the obvious — this is a CEO who will do whatever it takes to prop up his stock.

    TSLA might ultimately come crashing down.  But, I would absolutely wait until the purple trend line and horizontal support break down before jumping on board.

    Now, on to the rest of the market.

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  • Currency Complications

    USDJPY reached our target at the SMA100/SMA200 overnight, at least temporarily bringing the pair back below the top of the falling white channel from which it broke out on July 10.  Readers will recall that breakout was instrumental in helping SPX break above its faux IH&S neckline 66 points ago.

    A USDJPY rebound here is all stocks might need to make new highs.  EURUSD, which is backtesting after a major channel breakdown, would certainly support a strengthening of the USD……as would DXY — which is the latest victim of “unpresidented” tweets.

    As central bankers have recently discovered, however, there are complications from continued dollar strength which would suggest that it will take a break here.  Will they heed those warnings, or are new all-time highs in equity markets more important?

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  • Charts I’m Watching: Aug 20, 2018

    Futures are hanging on to a 4-pt gain, primarily on a continuing decline in VIX.  With Jackson Hole coming up, we could see more volatility — particularly if Fed speakers back off their hiking schedule.

    Speaking of backing off…TSLA is back down to its horizontal and trend line support.  As readers will recall, this is a critical line in the sand.As we concluded last May [see: Can TSLA Avoid a Crash?] a drop through this key level could easily land the stock below 200.  Our chart from back then, before the craziness really got going…

    Apparently JPM has also adopted this view.  And, an increasing number of observers are coming to the same conclusion we did a couple of weeks ago regarding Musk’s emotional state [see: Is the Pressure Getting to Elon Musk?]

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  • Update on Gold: Apr 11, 2018

    In our last major update [see: Jan 26 Update] we noted that gold, 1355 at the time, had reached the same price level at which it had frequently reversed.  Even though we’d had a bullseye at 1377-1380 for over a year, it had stopped short several times.

    GC is sitting just below the neckline of the huge IH&S that could result in a significant breakout.  The fly in the ointment: I don’t think TPTB will let it break out.  So, you should either take profits here in the 1348-1365 range, or at least set your stops at this level.

    As it happened, 1365 (reached the day before) was the cycle high.  Gold tumbled 4.1%, then bounced around between roughly 1308 and 1362 for the next two months.  Our interim posts caught most of the moves:

      * * *

    Feb 8: Analog Details  “[Gold] has dropped 4.1% since reversing where expected in late Jan, and just reached fanline and double channel support [1321.] Could it finally be ready to tag 1377-1380?”  Bottomed that day, rallied to 1364 over the following week (+2.51%.)

    Feb 15: Where to, Next?  “GC might have run out of steam here [1360.] Cautious types should consider taking profits, while the daredevils out there remain focused on 1380.” Topped out the following day at 1364 (+2.95%.)

    Feb 27: Powell’s French Toast   “Gold is getting clobbered…our analog suggests a Mar 1 turning point. The SMA100 should be around 1303 by then and would be a better bounce spot.”  Bottomed on Mar 1 at 1303.60 (+4.15%.)

    Mar 27: Algos to Markets – All Better  “GC, which tagged its 1362 resistance yet again, has retreated once more… It still has a good shot at 1380, but only if/when DXY finally breaks down.” Reached 1369.40 today (+5.05%.)

     * * *

    So, here we are, sitting on a tidy 14.7% gain.  It’s not terrible for 2 1/2 months work, considering gold has only netted a 0.9% gain during that period.  But, I hate to leave money on the table. Is it time to pull the plug on 1377-1380?  Or, are we about to reach or exceed it?

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    The two major factors at work are the ongoing saga of the US dollar and the possibility of a shooting war with Russia in Syria.  I can’t speak to the question of a war other to say anything’s possible, especially with the crew currently running the ship.

    The dollar is another matter.  While it normally rises and falls in sync with interest rates, this relationship reversed at the end of 2017.    At that point, DXY logged another leg lower while TNX spiked. At just shy of 3%, the TNX became a drag on equities — the whole “going broke” thing [see: Why Rising Rates Are a Problem This Time.]  But, as the gyrations in equities picked up again, great care was taken to ensure it didn’t plunge in value.

    I suppose the thinking was that lower rates would weaken the dollar’s appeal.  Or, maybe it was just fear of a yield curve inversion.  In any case, TNX’s purple TL has refused to break down. DXY also refuses to break down.  And, this could go on for quite a while.  It needs to tag the bottom of the rising purple channel.  But, until mid-July rolls around, that would mean dipping below the .618 at 88.423.  So, it’s quite possible TPTB will prop it up for another three months! 

    Remember, Mnuchin publicly stated he wants to support the USD.  And, it goes without saying that he, like every central banker, loathes any serious price appreciation in gold, as it undermines the value of the mighty dollar. One silver lining, EURUSD suggests a shorter timeframe, say Jun 5.  But, even two months would be a long time to wait for another few points.  An escalation in MENA tensions could obviously accelerate things.  But, is it worth taking the risk for 10-15 points?  I think not.  I’d pull the plug or at least enter stops here at 1367.  If it pops above 1380, great.  No argument with going long, again.  DXY could drop to 87 tomorrow, and GC could easily reach 1377-1380 or higher.

    But, if DXY continues sideways, and unless war breaks out in the next day or two, it seems likely that gold’s next move will be lower.  The most obvious support is at the rising white channel bottom and SMA100, currently around 1315.2-1318.  If the channel breaks down again, the SMA200 will reach the purple channel line later this month, probably around 1300.  I’ll update things if we see a material deviation in either direction.

    GLTA.

     

     

  • 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 Rally That VIX Built

    As discussed yesterday, stocks spent the night building a cushion based on VIX (currently off 5.4%) in preparation for tomorrow’s FOMC announcement.  It started just before the close, yesterday, and has built to a 6-pt gain in the futures.Actually, it’s been less of a rally, lately, and more of an effort to maintain ES at levels above its IH&S Pattern target reached back on Jun1.  Remember the mantra “stay fully invested, because you never know when a sudden rally will appear out of nowhere and you can’t afford to miss it”?  These days, it’s the corrections that pass in a flash, like Friday’s 31-pt plunge which was reversed so quickly that it won’t even register on daily charts.

    But, I digress.  Today’s action is all about putting more distance in between SPX and the Support Below Which it Must Not Go in the wake of the FOMC meeting.

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  • Pulling Out All the Stops

    When unexpected unpleasantness unfurls, you can count on central banks to pull out all the stops. Such is the case with the British election results which, like Brexit, have wreaked havoc on FX markets.

    EURGBP, having broken down from its rising red channel dating back to mid-2015, was well on its way to a perfectly nice backtest at .80ish. Instead, it’s backtesting the broken red channel itself. Hence…the stop pulling.It should start with nice bounces from USDJPY and CL — which, as discussed yesterday, have already reached interim bottoms — and, of course, a sharp plunge by VIX.

    Look for USDJPY to pop through its SMA200 for good measure… …and CL at least hold its own in the midst of strong selling pressure.

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