Weekend Update
November 15, 2013
— VIX has finally completed its Primary Wave [5] which may have been truncated. This happens more often than one would suppose. The Cycles Model suggests that the decline is finished. Perhaps we may see new highs developing now.
SPX “throws over” its trendline.
— SPX did a final throw-over of the massive Ending Diagonal. Throw-overs do not last. The reversal from this point may be violent.
(ZeroHedge) As we “forecast” this morning (and a month ago – if our extrapolation of the Fed’s balance sheet is correct – i.e. no Taper – that the S&P 500 Fed L-A-B-I-A should be around 1800 by year-end), the Fed can be proud that they managed (remember it “costs” $3.25bn in POMO to create 1 S&P 500 point) to get the key US equity index – the S&P 500 – near the critical 1,800 level…
NDX meets two trendlines.
— This week NDX found itself pressing against two upper trendlines, that of the Massive Ending Diagonal and the upper trendline of the Broadening Wedge formation. While Ending Diagonals often have throw-overs, Broadening Tops do not. This suggests that NDX may be at the end of the line.
(ZeroHedge) It is becoming increasingly obvious that we are seeing the disconnect between financial markets and the real economy grow. It is also increasingly obvious (to Citi’s FX Technicals team) that not only is QE not helping this dynamic, it is making things worse. It encourages misallocation of capital out of the real economy, it encourages poor risk management, it increases the danger of financial asset inflation/bubbles, and it emboldens fiscal irresponsibility etc.etc. If the Fed was prepared to draw a line under this experiment now rather than continuing to “kick the can down the road” it would not be painless but it would likely be less painful than what we might see later.
The Euro is bouncing between support and resistance.
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— The Euro bounced back through Intermediate-term support/resistance to close short of its Short-term resistance at 135.54 this week. The bounce may be over in very short order, since the Cycles Model suggests the Euro may be due for a significant low in mid-December.
(ZeroHedge) As we discussed two weeks ago, it would appear Germany’s lack of willingness to throw itself on the pyre of self-sacrifice and not adopt a global Fairness Doctrine – as engendered by the US Treasury’s (and IMF’s) bashing of the core European nation’s for maintaining its export strength and daring to keep Europe intact and thus a periphery-damaging strong Euro – is gathering steam.
The Yen is dropping out of its Triangle formation.
–The Yen dropped beneath the Triangle formation this week. The Cycles Model suggests an imminent sharp decline that may challenge the Head & Shoulders neckline at 96.00. The Yen may break down beneath the neckline in a Primary Wave [5] in a very strong Primary Cycle decline through early December.
Investing.com – The yen weakened further against the dollar on Friday, helping the Nikkei jump smartly in morning trade on expectations that easy global monetary policies will continue aggressively in the near term in the United States, Japan and Europe
USD/JPY kept gains above 100 in early Asian trade on Friday, continuing a trend from overnight after Federal Reserve Chair Nominee Janet Yellen said that monetary stimulus tools should stay in place as needed to ensure a more robust recovery…
The US Dollar consolidates at mid-Cycle support.
— USD closed above its mid-Cycle support at 80.73, leaving it in the upper half of its weekly trading band. 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.
(RT) To protect Russians against the “collapsing US debt pyramid”, a Russian legislator has filed a draft bill to ban circulation of the currency in Russia. Once a Moscow mayoral hopeful, Mikhail Degtyarev, 32, likens the US dollar to a worldwide ponzi scheme which he says is scheduled to end in 2017. “If US national debt continues to grow at its current rate, the dollar system will collapse in 2017,” the submitted draft legislation says.
“In light of this, the fact that confidence in the US dollar is growing among Russian citizens is extremely dangerous,” Degtyarev wrote in his explanatory note attached to the bill.
Gold bounces from its Cycle Bottom.
— Gold bounced from its last support – the Cycle Bottom at 1261.79. Since it appears to have completed an impulsive decline it may retrace some of its losses as far as Short-term resistance at 1311.82. The big picture looks very grim for gold. The nearer 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 bounce from the Cycle Bottom.
— USB declined to its Cycle Bottom at 130.27. The lower trendline of its Broadening Wedge is just beneath it, but may provide little support. Once it has completed its retracement, USB has an appointment with an important low possibly during Thanksgiving week.
(CFTCLaw) According to Businessweek, the Commodity Futures Trading Commission will be voting today on a new rule that will result in Treasury collateral being subject to a “prearranged and highly reliable funding arrangement.” Should the rule be passed, clearinghouses will be forced to back Treasury bonds with credit lines.
The rule, according to experts, could cause liquidity facility costs to double. The steep rise in operating price may lead to clearing members either passing those costs on to end customers or leaving the business outright. It seems that, while Treasury bonds are considered to be an extremely safe investment, liquidating them could take up to a day, which many think would be too long should an event similar to the financial crisis of 2008 arise.
Crude remains beneath mid-Cycle support/resistance.
— Crude extended a very powerful Primary Cycle decline to Thursday. At this point, it appears ready to stage a multi-week rally. We are evaluating to see whether it may rise above its Long-term support/resistance at 98.36. The Cycles Model suggests that, should it rally above critical support, it may continue to rise into mid-December. If so, we could see crude Challenging its Cycle Top at 110.09 by then. The alternate view suggests a rather lackluster bounce and further decline to the Cycle Bottom at 81.17.
(BBCNews) US domestic crude oil production has exceeded oil imports for the first time since 1995, according to the Energy Information Administration (EIA). The EIA said petroleum imports were at their lowest since 1991, partially due to surging domestic oil production from hydraulic fracturing, or fracking. In October, US crude oil output averaged at 7.7 million barrels per day (bpd). The EIA says it expects output to exceed 8.8 million bpd by 2014.
China stocks struggle to maintain Intermediate-term support.
–The Shanghai Index declined lower, but bounced back above its weekly Intermediate-term support at 2127.41. Support may not hold, since 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) The initial disclosures from the much anticipated and recently completed Third Chinese Plenum were a dud. Which, in a world where all the upside comes from hope and faith in the future (since the present continues to get worse), meant at least 20-30 S&P points left on the table just because the quality of promises, pledges and emotional words out of the Chinese Communist Party was not strong enough. So in order to change that, Xinhua has just pre-released a document summarizing all the party reform initiatives, this time with the promises taken up to the next level.
The India Nifty loses Short-term support .
— The India Nifty index may be starting a very fast decline to its Cycle Bottom. After it completed its final reversal it dropped through weekly Short-term support at 6076.35 and retested it as resistance at the close of the week.
The trigger to activate the Orthodox Broadening Top formation lies at the bottom trendline at 4400.00 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 closed above Intermediate-term support.
— BKX “ran the stops” again by rallying on Friday back above its trendline. Even still, it did not make a new high, so the August 2 high still stands. However, BKX has an important low to make in late November. This has been a very difficult index to short for many investors.
(ZeroHedge) By now everyone has heard of securitization: the process whereby banks take risky assets on their books, package, tranche them, and then re-sell them to yield chasing fiduciaries of widows and orphans. The conversion process can be nebulous, usually involving a 20 year-old evil French mastermind working for Goldman, and a billionaire hedge fund manager, who select the worthless securities put into the weakest tranche, just so the abovementioned two parties can short it while misrepresenting their conflicts of interest, and make a boatload of money when the whole securitized structure implodes. The process usually takes place “off balance sheet” via Special Purpose Vehicles so it is completely unregulated, and as such allows massive leverage.
(ABCNews) European Union finance ministers vowed on Friday to make sure the region’s banks have restructuring plans ready in case they flunk a key review of their finances.
The European Central Bank is leading a yearlong review of the EU’s largest banks to find and then either fix or weed out weak banks. The question is what to do in case the review finds a bank needs to raise more capital. The ministers in Brussels said that they would make sure to have the banks prepare “specific and ambitious strategies.”
(ZeroHedge) Today’s release of the 2013 edition of the Global Shadow Banking Monitoring Report by the Financial Stability Board doesn’t contain anything that frequent readers of this site don’t know already on a topic we have covered since 2009. It does however have a notable sidebar which explains the magic of “(un)fractional repo banking” – a topic made popular in late 2011 following the collapse of MF Global – when it was revealed that as part of the Primary Dealer’s operating model, a core part of the business was participating in UK-based repo chains in which the collateral could be recycled effectively without limit and without a haircut, affording Jon Corzine’s organization virtually unlimited leverage starting with a tiny initial margin.
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
www.thepracticalinvestor.com
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