Weekend Update
November 22, 2013
— VIX has either completed a truncated Primary Wave [5] or it is in the final stages of completion. The low on November 15 is at an appropriate time, but it could extend another week into the Thanksgiving weekend. The Cycles Model suggests that the decline is finished or very nearly so. A breakout above 13.94 will suggest the change in trend is at hand..
SPX continues its throw-over.
— SPX maintained its throw-over above the massive Ending Diagonal. Thanksgiving week is often considered the “peak week” of the positive season for stocks. Normally throw-overs last no more than a few days, but an Ending Diagonal this size may be allowed up to three weeks. The reversal from the top may be violent.
(ZeroHedge) The S&P 500 has now managed the longest weekly winning streak (7 weeks) since May 2007 (when it managed a 9% gain). Off the recent lows, the current run is an impressive 9.6% (for the S&P) with Trannies up 12.5% in the same period. (we hesitate to mention that May 2007’s run-up was halted by the first of the structured credit funds imploding) On the week, Trannies and NASDAQ ended back practically unch, Russell 2000 outperformed but the afternoon melt-up in stocks (on the back of more shorts being squeezed) held the S&P above 1,800 close for the first time ever.
NDX meets two trendlines.
— This week NDX is again 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 approaching the end of the line as it presses to meet the Broadening Top trendline one final time.
(ZeroHedge) Analysts are forecasting the highest fraction of companies to post year-over-year margin expansion in our data history, despite the already near-record profit levels today. The only thing one can say when looking at this chart of expectations (apart from – imagine the job losses needed to achieve this) is WTF?!
The Euro is bouncing between support and resistance.
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— The Euro bounced higher up to Short-term resistance at 135.58 this week. The bounce appears to be complete, since the Cycles Model suggests the Euro may be due for a significant low in mid-December.
(ZeroHedge) Talking-heads and commission-takers have momentum-chased clients’ hard-earned money into Europe’s ‘what works now’ markets – on the basis of what has now proved to be entirely fallacious macro- and micro-fundamental improvement (as we noted here and here). But, while “whatever it takes” has smashed bond spreads lower and has blown stock prices higher; most critically, the ‘confidence’ has seen the EUR rise almost 15% against the USD from its July 2012 “whatever It Takes” lows.
The Yen gains downside momentum.
–The Yen continues its slide toward 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 mid-December.
(WSJ) TOKYO—Bank of Japan Gov. Haruhiko Kuroda on Friday rejected the view that the central bank’s aggressive pumping of money into the economy is creating a stock market bubble and excessive yen weakness, instead stressing that he will press ahead with monetary easing to vanquish deflation. “I don’t think there is any bubblelike, abnormal yen weakness right now in the currency market,” Mr. Kuroda said during a parliamentary session when an opposition lawmaker accused the BOJ’s policy of merely causing bubbles in asset prices. “I have no particular concerns that a bubble may be in the making in the asset markets,” he added.
The US Dollar consolidates at mid-Cycle support.
— USD may continue its consolidation beneath mid-Cycle support next week. In all likelihood, it may retest the lower trendline of its Triangle formation at 80.00 before spiking higher. This may prove to be a head fake for dollar shorts since the next Cycle high may occur by mid-December.
(TheGuardian) Since 1976, the US dollar‘s role as an international currency has been slowly waning. International use of the dollar to hold foreign-exchange reserves, denominate financial transactions, invoice trade, and as a vehicle in currency markets is below its level during the heyday of the Bretton Woods era, from 1945 to 1971. But most people would be surprised by what the most recent numbers show.
But the dollar’s status as an international currency has not fallen uniformly. Interestingly, the periods when the public is most concerned about the issue do not coincide with the periods when the dollar’s share in international transactions is in fact falling.
Gold hovers above a Head & Shoulders neckline.
— Gold appears to be hovering just above a small Head 7 Shoulders neckline at 1235.00. Although gold is oversold, it may continue its decline to the next cyclical low, due in mid-December. The nearer term target is the completion of its smaller Head & Shoulders formation at or near 1070.00. I hope that I am wrong on the lower target, which may arrive in 2014.
(ZeroHedge) What do the following dates have in common: September 12, October 11and now, November 20? These are all days in which there was a forced gold slamdown so furious, it triggered a “stop logic” event on the CME resulting in a trading halt of the precious commodity.
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. It may retrace to its weekly Short-term resistance at 132.45 next week before resuming its downtrend.
(Bloomberg) Treasury 10-year yields rose to the highest level in two months as Federal Reserve officials said they might reduce $85 billion in monthly bond purchases “in coming months” as the economy improves, minutes of their last meeting show.
The difference between the yields on three-year notes and the 30-year bond widened to the most in more than two years as the policy makers expect “ongoing improvement in labor market conditions.” Fed Bank of St. Louis President James Bullard said earlier a cutback in the central bank’s purchase program is “on the table” for the December meeting, while 5 percent of investors surveyed are looking next month for a Fed decision to taper, according to the latest Bloomberg Global Poll.
Crude appears ready to overcome resistance.
— Crude challenged overhead resistance at its weekly mid-Cycle at 95.98. At this point, it appears ready to stage a multi-week rally. Crossing above the mid-Cycle (mean) puts crude back into positive territory. The Cycles Model suggests that, should it rally above critical support, it may continue to rise into mid-December.
(Bloomberg) West Texas Intermediate’s discount to Brent reached an eight-month high as rising inventories weighed on U.S. futures and limited progress in Iran nuclear negotiations supported the European benchmark.
The spread widened to $16.21 from $14.64 yesterday. WTI declined as rising domestic output added to inventories at record highs for this time of year. Brent reached a six-week high as envoys haggled over language in their efforts to ease the standoff over the atomic ambitions of Iran, whose oil exports have been reduced by sanctions.
China stocks repelled at trading channel trendline.
–The Shanghai Index rallied back to its declining trading channel trendline, which has defined Cycle tops for the past 3 years. China stocks reached a Cycle Pivot day yesterday and may aleady have commenced its decline. The next Pivot low may occur in late December, so this may be a strong decline.
The India Nifty loses Short-term support .
— The India Nifty index is showing rising volatility as it made a strong (65%) retracement, then gave it all back as it resumed a very fast decline to its Cycle Bottom. The next levels of support are both Intermediate-term and Long-term at 5876.97.
The trigger to activate the Orthodox Broadening Top formation lies at the bottom trendline at 4900.00 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 may be due for another positive week.
— BKX appears to be targeting its Cycle Top at 68.86 or perhaps slightly higher before “giving it up.” Certain long-term Cycle relationships are met over Thanksgiving weekend, so enjoy the turkey, but don’t linger for any leftovers..
(ZeroHedge) Overnight repo rates are spiking once again in early trading as the typically smaller banks that are more desperate bid aggressively for whatever liquidity they can find. 5Y Chinese swap rates have also reached a record high as the Yuan reaches its highest since Feb 2005.
The gambit between the PBOC’s liqudity provision and the growing dependence on their “spice” is clear – the question is, of course, will banks send a message (via the markets) to the PBOC or will they self-select (on first-mover’s advantage) eradicating the weakest.
(ZeroHedge) That didn’t take long…
*SENATE BANKING PANEL VOTES 14-8 TO APPROVE YELLEN AS FED CHIEF
*REPUBLICANS CORKER, COBURN, KIRK VOTE IN FAVOR OF YELLEN
*MANCHIN ONLY PANEL DEMOCRAT TO OPPOSE YELLEN FED NOMINATION
*YELLEN NOMINATION AS FED CHAIRMAN SENT TO FULL SENATE
Given this, the full Senate vote will be a rubber-stamp heralding the new era of Yellenomics as the QEeen takes her throne.
(WSJ) With Tuesday’s $13 billion settlement with J.P. Morgan JPM +0.42% over the sale of mortgage-backed securities, the Justice Department has finally solved the mystery of the financial crisis. Turns out that the bankers did it—to each other, and even to themselves.
We’ve been critical of this government plundering of a bank that did not need a bailout in 2008, but we defy anyone to follow the logic of Tuesday’s Morgan agreement.
It seems the Justice Department has its hands in the till, too.
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
www.thepracticalinvestor.com
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