pebblewriter

Tag: USDJPY

  • Mixed Messages

    The headlines have been coming fast and furious over the last 24 hours.  First, Trump’s tweet yesterday morning regarding trade negotiations with China touched off a rumor, declared false this morning, that a trade deal was imminent. But, SPX soared yesterday anyway.

    Then AAPL’s earnings came out.  The numbers were underwhelming; and, the company’s announcement that they’d no longer report unit data was very poorly received.

    The chart we put up yesterday prior to the close [see: All Eyes on AAPL] showed substantial downside potential… …which after-hours trading is confirming.Then there was this morning’s payrolls data: a 250K increase with a 3.1% increase in average hourly earnings.  While no doubt  It’s exactly the sort of data the Fed needs to justify further rate increases in the face of the collapse in oil and gas prices — the last piece of the puzzle.

    Gasoline has now fallen over 20% since our Oct 3 short call and tagged another downside target yesterday.Oil is off over 16% and just broke beneath horizontal and channel support.  To be sure, it will keep October’s CPI low and will delight voters driving to the polls on Tuesday.  But, like the employment data, there are repercussions.By the way, I have updated our oil and gas forecasting results, available at the links below.

    Oil Results
    Gas Results

    I hope to post currencies, VIX and gold later today or this weekend.

    Futures melted up to backtest the SMA200 early this morning and have since fallen 16 points to the algo-darling SMA5 200.  It remains to be seen how the mixed messages being sent up from Washington and Cupertino will play out.  But, for now, I’m leaving our targets in place.For the moment, at least, VIX’s 50/200 cross is on again.continued for members… (more…)

  • Coincidences and Consequences

    It’s interesting how Khashoggi’s murder top-ticked oil and gas prices…

    …and, so soon after Trump’s latest demand that OPEC lower oil prices.

    I’m certainly not insinuating that Trump had anything to do with Khashoggi’s murder.

    But, OPEC ignored Trump’s Sep 20 demand.  Two weeks later, oil prices had spiked 10% higher.  Since Oct 3, the day of the murder, WTI has fallen 14.5% and RBOB has fallen 16.7%.

    As Churchill famously said, “never let a good crisis go to waste.”

     *  *  *

    Sometimes it’s quite difficult to anticipate a major market move.  You’ve got hundreds of companies, all with their own earnings, outlooks, and market-moving headlines.  Then, there’s the economic news of the day, both domestic and foreign.  And, of course, there are geopolitical developments such as who’s dismembering or cozying up to whom?

    And, sometimes it’s not so difficult at all. It can be as simple as the VIX chart we’ve discussed all week.  From Time to Panic on Tuesday:

    Note that VIX need only break the purple TL [for SPX to bounce.] If VIX doesn’t break down, this should be the end of the line for this bounce.

    It didn’t bounce.  SPX plunged.  Next?

    Or it can be slightly more complex, but still fairly straightforward — such as is the case with oil and gas.

    As we all know, central bank support (low interest rates, among other accommodations) has been critical to stock prices since 2009.  Low interest rates, of course, rely on low inflation.  And, low inflation relies to a great extent on low oil and gas prices (more accurately, low MoM and YoY increases in those prices.

    From last April in Oil & Gas, Inflation and Interest Rates: A Delicate Balance or Goal Seeking?

    The complicating factor, of course, is that oil and gas prices took over the job of stimulating algos (chief among the 90% of all trading activity which is conducted by machines) to drive stocks higher.

    Most recently, oil, gas and SPX all bottomed on Feb 11, 2016 and oil and gas prices played an integral role in stimulating the subsequent rally.  The most important nudge was in December 2017, when oil and gas prices broke out of an already rising channel.

    To chartists, and to algos, this is a very bullish maneuver.  It also has the effect of driving inflation and interest rates higher. CPI rose from 2.11% in December 2017 to 2.95 in July 2018.  The 10Y rose from 2.31% in December to 3.24% just a few weeks ago.

    The Fed told us they were okay with this, that they were going to let the economy and inflation “run hot.”  I was among the many doubters, citing the damage that higher rates would inflict on our already alarming budget deficit, but darned if they didn’t do it anyway. I suppose that, at the end of the day, a temporary increase in the rate at which the debt and interest expense are expanding was less important than having a higher perch from which to crash rates during the next GFC.

    Stocks ignored the implications for a while, happy to play follow the leader with oil and gas prices.  The day that RBOB popped out of the rising purple channel was the day that SPX popped above its 2.24 Fibonacci extension at 2703 – a level which might otherwise have provided serious overhead resistance.  It can be seen as the horizontal, purple trend line on the chart below. In early February, though, RBOB’s breakout faltered.  No surprise, but SPX followed along, suffering its biggest and sharpest decline in years.  Like magic, RB quickly popped back above the purple channel top – rescuing SPX and helping it back above 2703.

    Note that SPX went on to new all-time highs in September, only after RB backtested the purple channel and bounced higher.

    And this lovely little correction we’re enjoying?  SPX topped the day that RB failed to break out of the falling yellow channel (also the day of Khashoggi’s murder.)  SPX fell through its 200-day moving average on the day that RB plunged back below the purple channel top.  And, SPX plunged below 2703 on the day that RB fell out of the falling yellow channel.

    With the elections less than two weeks away, I’m not expecting a sharp rebound in oil and gas prices any time soon.  So, the algos will have to rely on other tools — such as VIX, which has now shed 12.5% since tagged our 26 target yesterday.

    So far, VIX’s decline has produced a pretty nifty bounce.  Is it enough to offset weakness in oil and gas and a hawkish Fed which has been browbeaten by a “low-interest rate president?”

    continued for members... (more…)

  • Appearances

    Credit: REUTERS/Jonathan Ernst

    It is often said that there are two sides to every story and, somewhere in middle, lies the price of oil.  Okay, I paraphrased that just a bit.

    But, isn’t it odd that the day after the Saudis threaten $400/barrel oil, Donald Trump suddenly embraces the ludicrous “rogue killers” theory for the death of Washington Post columnist Jamal Khashoggi?

    It appears that after days of vehement denials of any involvement, the Saudis suddenly remembered that Khashoggi was, in fact, assassinated and dismembered in their Turkish embassy (Saudi operative: “Oh, yeah…that guy that we chopped up with a bone saw?  I had forgotten all about that!)

    After a 20-minute conversation, the president who fell in love with Kim Jong-un also came to terms with Saudi King Salman.  Was it love?  To quote the master of the deal, himself, who knows?

    But since Trump is desperate to reverse the rise in gas prices, inflation, and interest rates between now and November 6 (and, to salvage billions in arms sales) don’t be surprised if we get that next leg down in oil prices very soon.  Nobody knew the economy could be so complicated!

    And, while we’re on the topic of government prevarication, the much-delayed September Treasury Statement was finally released yesterday.  Anyone notice something odd about September outlays?  Did we really see a plunge in every expense category?  Or, maybe, someone decided to massage the numbers just a bit to prevent the report of a $1 trillion deficit.  Appearances, again.

     

    Nah…then we’d surely see other efforts to obfuscate the country’s fiscal plight.  For instance, they’d never allow charts like this one from the August report.

    The same chart in September…  (appearances, indeed!)continued for members… (more…)

  • Are We There Yet?

    SPX came within 7 points of our downside target yesterday, getting a midday bounce that couldn’t quite reach the 200-DMA.  Futures popped as high as 73 points off the intraday lows, but have since given back about 12 of those points and are perched barely above ES SMA200 at a 28-pt gain in the after-hours.If those gains hold, it still won’t be enough to ramp SPX back above its 200-DMA.  What’s more, USDJPY, RB and CL have further to fall, VIX has additional upside potential and DJIA and COMP remain below their 200-DMAs.  Despite the after-hours euphoria, stocks aren’t out of the woods just yet.

    One economic item which doesn’t usually attract that much attention, but might today: Treasury Budget.  The trend hasn’t been very positive lately as witnessed by the widening gap between outlays and receipts.

    For excellent commentary on the problems this poses, see Jeffrey Gundlach’s interview on CNBC yesterday.  The latest is due out at 2pm.  From Briefing.com:

    Export and import prices are also due out (8:30am.)  These will get extra scrutiny to see what impact tariffs have had on prices so far.  And, Michigan Consumer Sentiment (10am) frequently impacts markets.

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  • Investing for Dummies

    I use scores of chart patterns, Fibonacci grids, technical indicators and proprietary models in my daily attempts to forecast various markets.  Some are fairly complex, multivariate models that involve a half-dozen inputs.  Others are quite simple.

    One of my favorite simple indicators is the well-known 10-day/20-day moving average cross. It maintains that when the SMA10 crosses below the SMA20, it’s generally bearish. When it crosses back above, it’s bullish.

    Of course, in a heavily “managed” market such as the one I’ve been posting about for the past 7 1/2 years, the crosses are occasionally head fakes.  The cross is well-known and a component of many algorithms.  So, it’s not unusual for markets to reverse rather soon after such a cross.  Sometimes, markets even reverse just before a likely cross in order to avoid one.

    The yellow arrows below mark the various bearish crosses so far in 2018.  The thin red line is the SMA10 and the white line is the SMA20.  Other moving averages are the 50 (purple), 100 (yellow) and 200 (thick red.)

    Only a couple 10/20 crosses were followed by significant sell-offs: Feb 6 and Mar 22.  The others produced either moderate or modest declines (i.e. head fakes — the purple arrows) or near misses (the white arrows.)  I mention it this morning because we’re experiencing another 10/20 cross in the pre-market.

    There is much bearish commentary out there.  VIX just broke out of a 8-month trend, tagging our next upside target yesterday.  SPX and ES have both tested the critical support we identified last week [see: The 10Y Breaks Out.]  And, the usual suspects involved in a rescue operation are, so far at least, MIA.

    Will this be another head fake/near miss — or the real thing?

    continued for members…

    My best guess continues to be that if 2878.50 (SPX 2872.87) doesn’t hold, we’ll see the white channel get fleshed out.  If the white channel doesn’t hold, it opens up the SMA200 and, ultimately, the 2.24 at ES 2728.79 (SPX 2702.78.)

    SPX wouldn’t flesh out its white channel until reaching 2800 – the white .786 Fib.  Again, if the white channel fails, we’re looking at the SMA200 at 2765 and the 2.24 at 2703.62.

    CL and RB are getting a little bump from Hurricane Michael and the usual MENA-based speculation.

    Note that RB, in particular, has clung to a smaller rising channel.  It won’t last.

    USDJPY still looks likely to backtest its SMA100 at 111.19 or .500 at 111.78 — which lends credence to the downside case – at least on an intra-day basis.VIX continues to be the big question mark.  It has clearly broken out of the falling white channel.  If given free rein, it still has plenty of upside potential with 24.20 looking very reachable. I’ll be out all day today.  More later this evening or in the morning.

    GLTA.

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  • FOMC: What Elephant?

    Over the last 20 years, we’ve seen two yield curve (2s10s) inversions: essentially all of 2000 and Dec 2005-May 2007.  The inversions themselves posed no issues for equity markets.  It was the dramatic unwinding of those inversions that produced crashes.Eight months ago, we almost had another.  2s10s had fallen to a trend line connecting those two previous curve lows. Instead of bouncing, however, 2s10s continued falling — reaching a low of .18 on Aug 27.

    Unfortunately, the optics of this approach to an inversion are troublesome.  It is commonly believed that inversions presage recessions.  So, the brain trust in the Eccles Building has a little tightrope walking to do.

    They need to increase the short end of the curve to stave off (understated) inflation and build some cushion for the next financial calamity.  But, to avoid an inversion, they must scale back their intervention in the 10Y — at least enough so it can keep pace with the rapidly rising 2Y.

    Eagle-eyed observers might note that both recently out above the trend line connecting previous highs. Not so coincidentally, this occurred as the above-referenced trend line connecting the 2s10s lows was breached and equities began their Jan-Feb swoon.Can the Fed keep the plates spinning a little longer?  Without question.  Especially if Powell is successful in convincing investors algos that the economy is strong but there is no wage pressure and inflation poses no real threat.

    Should that narrative fail, however, the spectre of higher rates alongside soaring debt levels might finally awaken equity and bond investors to the elephant in the room.

     *  *  *

    So far, the damage resulting from Friday’s channel breakdown has been contained to the August highs.  But, still ahead, EIA inventory reports and the FOMC statement and press conference.

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  • 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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  • The Devil’s Playground

    Catch this news flash yesterday?  Trump, ironically at a White House meeting with the National Council for the American Worker:

    You’re gonna see on China, today, right after close of business…we’ll be announcing something, uh, and it will be a lot of money coming into the coffers of the United States of America, a lot of money coming in, but you’ll be seeing what we’re doing uh right after close of business today, the markets closing.  Thank you.

    Note the repeated emphasis on the market’s closing. Was there something about the announcement that required a delay?  To paraphrase…the after-hours markets are the devil’s playground.

    The S&P 500 plunged 22 points from Friday’s highs, then recovered just in time for a well-engineered close: down only 16 points on the day.  More importantly, it closed at 2888.80 – just above yesterday’s 10-DMA at 2888.70 (2888.80 today.)

    After the close, of course, the futures tanked – shedding 14 points before being saved by the usual suspects: VIX, WTI and USDJPY.  Trump’s announcement didn’t come right after the close.  In fact, it didn’t come until after 3 1/2 hours had passed.  Why?That’s how long it took to get the safety net properly positioned.  USDJPY, which had just backtested its IH&S neckline, spiked sharply moments after the announcement.

    VIX, which had just backtested the broken white channel, suddenly reversed and headed lower.

    The overnight action was impressive, with the usual timely plunges when ES faced important tests. How much more of a smackdown will resurrect stocks’ rally?Whether the rebound will hold or not is anyone’s guess.  China has already announced retaliation – which Trump insisted will lead to a $267 billion expansion of US tariffs.

    Futures are under pressure again, and interest rates are threatening to break out on the obvious (to everyone except Trump, apparently) inflation threat that tariffs pose.  Might investors care that the trade wars could, as Jack Ma theorized, last for 20 years?

     

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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.

    continued for members… (more…)