Weekend Update
November 8, 2013
— VIX has been in a declining trend channel since its 7-year low in March. Usually, once the cycle low is made, the index usually reverses and begins challenging the prior highs. In this case, the VIX made two lower highs since March, remaining in the declining trend channel. This suggests we look for alternate explanations. The first that comes to mind is that the VIX is ending its trend with a truncated low that should have at least challenged the lower trendline. The Cycles Model suggests that the decline is finished, also in a truncation. Perhaps we may see new highs developing now.
SPX still beneath Cycle Top resistance.
— Although SPX had a gain for the week, this is the second week that it closed beneath Weekly Cycle Top resistance and trendline at 1771.24. Trendline resistance held as the SPX ramped the close to get a positive reading for the week. This behavior will not last.
(ZeroHedge) It seems like the last 2 days have been a massive NASDAQ-TWTR pairs trade… Today saw broad stock indices best day in a month despite the early “good news is bad news” sell-off as newly minted TWTR heads towards its first bear market threshold off the highs. The Dow managed to get back to a record high close by the end of the day.
NDX appears to be rolling over.
–NDX saved itself from an even greater loss by ramping the close. The upper trendline of the Broadening Wedge formation appears to be stiff resistance to further advances in NDX. In fact, it appears that NDX is leading the other domestic equity indices lower since it peaked two weeks ago.
(ZeroHedge) “People are, once again, being fooled,” fears Bill Fleckenstein in this brief CNBC clip, warning that investors buying into the stock market at all-time highs here are making a grave error. Investors are ignoring fundamentals at their peril, “in the stock mania in 1999, people were bullish because stocks were going up. In 2007, people were bullish because stocks and real estate were going up. They didn’t (look) ask – Why are they going up? Is this sustainable? Is this healthy? – and in both cases, it was not.”
The Euro closed beneath two important supports.
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— The Euro broke through both weekly Short-term and Intermediate-term supports this week. It appears to have bounced near its weekly Long-term support at 132.30, but may be trapped by its Intermediate-term resistance at 134.09. The bounce may be over in very short order, since the Cycles Model suggests the Euro may be due for a significant low in about 4 weeks.
(ZeroHedge) European monetary policy/monetary conditions are too tight and, Citi’s FX Technical group explains, the EURO is too strong thereby exacerbating the effects of the internal devaluation in Europe (as we noted here). Looser monetary policy and a weaker currency are becoming increasingly necessary conditions for the Eurozone to recover/survive. Thepresent period in the Eurozone, Citi adds, where the financial architecture is coming apart at the seams is not remotely unprecedented and in fact offers a very compelling historical perspective for significant devaluation of the EUR in the years ahead.
The Yen is dropping out of its Triangle formation.
–The Yen rallied once more inside its Triangle formation and closed beneath the Triangle on Friday. The Cycles Model suggests an imminent sharp decline that may challenge the Head & Shoulders neckline at 96.00. The Yen may shortly resume beneath the neckline in a Cycle Wave V, carrying it to new lows as early as next week.
(The Guardian) Gazing down at the glassy surface of the spent fuel pool inside the No 4 reactor building at Fukushima Daiichi, it is easy to underestimate the danger posed by the highly toxic contents of its murky depths.
But this lofty, isolated corner of the wrecked nuclear power plant is now the focus of global attention as Japan enters the most critical stage yet in its attempt to clean up after the worst nuclear accident in the country’s history.
The US Dollar breaks above its Falling Wedge.
— USD closed above its Intermediate-term resistance at 81.11 this week. It has emerged from its Falling Wedge which implies to or above its Wave (D) high at 84.96. The long-term uptrend has regained the upper hand in a very negative environment. Dollar shorts are retreating as institutions begin to allocate more toward the Dollar.
(CNBC) The dollar soared against the euro and yen on Friday after data showing U.S. job growth unexpectedly accelerated in October. The strong jobs report fed market speculation that the U.S. Federal Reserve could taper its monthly purchases of $85 billion in assets sooner rather than later, particularly after a much better-than-expected U.S. gross domestic product report on Thursday.
Gold has a last support. Will it hold?
— After breaking through Intermediate-term support at 1322.84 last week, Gold appears to be declining toward its last support – the Cycle Bottom at 1269.51. A further breakdown next week puts gold in jeopardy of breaking a massive Head & Shoulders neckline just under 1200.00. The big picture looks very grim for gold. The near term target is the completion of its Cup with Handle formation near 731.28. I hope that I am wrong on the lower target.
Treasuries also nearing final suport.
— USB declined through both weekly Short-term and Intermediate-term support this week. The next levels of support are its Cycle Bottom at 130.54 and its Broadening Wedge trendline just beneath it. USB has an appointment with an important low possibly during Thanksgiving week. However, before that happens, there may be a bounce back to retest resistance at 132.39.
(ZeroHedge) The reaction to the non-farm payrolls report in the US Treasury complex has the bond bears out en masse this morning. A 10-12bps jerk higher in yield is nothing to sneeze at and certainly flushed more than a few uncomfortable longs out – but BofAML’s MacNeil Curry warns “treasury bears beware.” The completing 5 wave advance and confluence of support between 2.738%/2.759% says further yield upside is limited. Don’t be max short into these levels. There should be better levels to sell in the days ahead.
Crude remains beneath mid-Cycle support/resistance.
— Crude ended a very powerful Primary Cycle decline on Tuesday. We are evaluating to see whether it may rise above its Long-term support/resistance at 98.63. The Cycles Model suggests that, should it rally above critical support, it may continue to rise into early December. If so, we could see crude Challenging its Cycle Top at 110.27 by then. The alternate view suggests a rather lackluster bounce and further decline to the Cycle Bottom at 81.17.
(Reuters) – A 90-car train carrying North Dakota crude derailed and exploded in a rural area of western Alabama early on Friday, leaving 11 cars burning and potentially bolstering the push for tougher regulation of a boom in moving oil by rail.
Twenty of the train’s cars derailed and a number were still on fire on Friday afternoon, local officials said. Those cars, which threw flames 300 feet into the night sky, are being left to burn out, which could take up to 24 hours, according to the train owner, Genesee & Wyoming. No injuries were reported.
China stocks have lost Intermediate-term support.
–The Shanghai Index declined beneath its weekly Intermediate-term support at 2118.99, losing all near-term support. The Cycles Model suggests the decline may extend to the third week of November. China stocks are in a Primary Cycle decline, which has the potential of being much stronger than might be expected.
(ZeroHedge) Earlier in the year we unveiled the most ‘epic’ Chinese over-capacity bubble chart. Of course, China bulls shrugged at such inconvenience as demand and supply imbalance (even as Michael Pettis destroyed many of their hopes and dreams as all that debt – to over-build and over-supply – has to be repaid). Fast forward to today, on the eve of the nation’s Third Plenum, and Chinese leaders are facing the music. As AP reports, leaders have ordered local officials to stop expanding industries such as steel and cement in which supply outstrips demand. The call, via video conference, saw planning officials warn local leaders to stop ignoring orders to reduce overcapacity in industries including steel, cement, aluminum and glass, “Those who still violate discipline will be heavily punished.” One chief engineer exclaimed, “the scale of overcapacity is unprecedented.”
The India Nifty retreats from its Cycle Top.
— The India Nifty index may be starting a very fast decline to its Cycle Bottom. It has completed its final reversal and the trigger to activate the Orthodox Broadening Top formation lies at the bottom trendline at 5400.00 It appears that CNXN may be reaching the bottom of this chart as early as the end of November, due to a Primary Cycle decline now underway.
The Bank Index is still gaming the trendline.
— BKX surprised the shorts again by rallying ton Friday back above its trendline. Nonetheless, it did not make a new high, so the August 2 high still stands. However, BKX has an important low to make by the third week of November. This is a very difficult index to short for many investors.
(ZeroHedge) In a day full of “shocking” announcements, we just got the latest one. Because it must be truly a shock that none other than Goldman’s Bill Dudley, who also moonlights as head of the New York Fed, is stoically against the break up of America’s systemically critical, massive and 100% untenable FDIC-insured hedge funds, pardon megabanks. Such as Goldman.
(ZeroHedge) One of the most trumpeted stories justifying the US economic “recovery” is the resurgence in car sales, which have now returned to an annual sales clip almost on par with that from before the great depression. What is conveniently left out of all such stories is what is the funding for these purchases (funnelling through to the top and bottom line of such administration darling companies as GM) comes from. The answer: the sameNINJA loans, with non-existent zero credit rating requirements that allowed anything with a pulse to buy a McMansion during the peak day of the last credit bubble.
(ZeroHedge) The following chart, from the Balyasny Asset Management Q3 letter to investors, show just that: the magic of hedge fund leverage in the New Normal.
Specifically, it shows that while BAM’s AUM from 2010 until Q3 2013 has increased only modestly (light blue), it is the dark blue bar portion that shows just how much “purchasing power”, i.e., allocation, has been deployed by the fund, thanks to the good graces of its Prime Brokers, who have allowed it expand its leverage from 100% to nearly 500%! Compare this to the peak leverage in the old normal which was roughly half: yes, that was at a time when the so-called credit bubble exploded. It has now doubled.
(ZeroHedge) During a brief interview on FOX Business, the author of The Age of Deformation (David Stockman) exclaimed “There’s no one in the stock market today except drugged up day-traders and robots… This is utterly irrational,” adding that “we’re in the fourth bubble inflated by the Fed in this century… but now we have the greatest, mother of all bubbles.”
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
www.thepracticalinvestor.com
Office: (517) 699.1554
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