Weekend Update
December 13, 2013
— VIX closed above last week’s high. It now has a “green light” for a higher rally. The next breakout point may be near 21.00, at the neckline of a complex inverted Head & Shoulders formation. It may happen faster than you imagine.
SPX closes beneath important supports.
— SPX closed beneath its Ending Diagonal trendline and weekly Short-term support at 1780.63. The Thanksgiving “peak week” high remains intact after two weeks of losses. The weekly Intermediate-term support at 1732.98 may be the next target as early as Monday. The Broadening Wedge trendline is at Long-term support at 1661.15. A decline beneath that level implies the decline may continue uninterruptedly to the target listed on the chart.
(OfTwoMindsBlog) Before you buy the dip “because this Bull market will run until 2016,” please ponder this chart from our Chartist Friend From Pittsburgh of total credit and the Dow Jones Industrial Average (DJIA). Unsurprisingly, the stock market advances when credit is expanding and declines when credit growth slows. Why is this unsurprising? Because ours is a debt-dependent consumer economy: everything from local government building projects to the purchase of vehicles to going to college requires borrowing money (i.e. credit expansion).
NDX reverses from its top.
— The NDX reversed from its top last week. It may now decline to the lower trendline of the double Broadening Wedge & Ending Diagonal formations. Elliott Wave analysis appears complete and NDX is now due for a major correction.
(ZeroHedge) The small-cap-dominated Russell 2000 fell for the 2nd week in a row for its worst performance in 4 months (though bounced modestly off its 50DMA today). Stocks traded in a relatively tight range today – swinging around VWAP – following their only driver – JPY crosses, most of the day. NASDAQ 4000 was rescued to ensure the headline-writers do not panic.
The Euro completes a very strong retracement.
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— The Euro retraced nearly all of its decline from the October 24 high. Time is running out for the rally, and because it could not overcome its previous high, it is vulnerable to a sell-off.
(ZeroHedge) While the Eurozone’s northern members enjoy low borrowing costs and stable growth, its southern members face high borrowing costs, recession, and deep cuts in incomes and social spending. They have also suffered substantial output losses, and have far higher unemployment rates than their northern counterparts. Unemployment in the Eurozone as a whole averages about 12%, compared to more than 25% in Spain and Greece (where youth unemployment now stands at 60%). Indeed, while aggregate per capita income in the Eurozone remains at 2007 levels, Greece has been pushed back to 2000 levels, and Italy today finds itself somewhere in 1997.
The Yen gingerly declines toward its Head & Shoulders neckline.
–The Yen continues its decline 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 that may last into the New Year.
(Bloomberg) Merkel added her voice to German officials including Finance Minister Wolfgang Schaeuble who have challenged Japan for trying to devalue the yen to spur the world’s third-largest economy. Prime Minister Shinzo Abe, sworn in on Dec. 26, has called on the Bank of Japan (8301) to carry out unlimited monetary easing and accept a higher central bank inflation target to boost exports by pushing the yen lower against competitors.
The US Dollar corrects to its Triangle trendline.
— USD appears to have made a very deep 72.6% retracement while briefly dipping below the lower trendline of its massive Triangle Formation. Despite the further decline, the dollar closed back above the trendline. The bear trap for dollar shorts has now been sprung.
(Reuters) – The dollar rose for a second straight session against the euro on Friday, as investors began pricing in the possibility that the U.S. Federal Reserve could announce a small reduction in its massive stimulus at next week’s meeting.
While market participants in general expect the Fed to start paring back its stimulus no later than March, a growing number expect a reduction in the Fed’s asset purchases may be announced
at the central bank’s Dec. 17-18 policy gathering.
Gold between a rock and a hard place.
— Gold rallied above its Cycle Bottom support to test the Lip of its Cup with Handle formation at 1270.00. In the process it may have created a new Head & Shoulders formation (horizontal line) as well. This gives gold two legitimate targets for its decline. These targets may not be exclusive of the other, since Head & Shoulders patterns present probable Wave 3 lows, while Cup with Handle formations often complete the impulse.
(ZeroHedge) A month ago, regulators in Europe began their investigation into manipulation of the “London gold fixing” (and we explained the methods here). While the complete history of gold manipulation goes a lot deeper than just banging the close on this crucial benchmark (which goes back to first world war); the decision by Germany’s financial regulator (BaFin) to probe Deutsche Bank signals greater concerns over the precious metals markets. As The FT reports, BaFin has demanded emails and documents from Deutsche Bank as part of an investigation into potential manipulation of gold and silver prices.
Treasuries crossing the Broadening Wedge.
— After testing its Broadening Wedge trendline at 129.71, USB appears ready to descend through it with devastating consequences for the Long Bond. The Cycles Model anticipates further decline through most of January before the next support may be reached.
(Bloomberg) The yield gap between 10- and 30-year Treasuries shrank to the narrowest in almost three months on speculation inflation will remain in check as the Federal Reserve prepares to slow bond purchases.
The benchmark 10-year note yield fell from a one-week high after wholesale prices in the U.S. declined for a third month. It rose yesterday after data showed retail sales jumped more than forecast in November. The House of Representatives passed the first bipartisan federal budget in four years, fueling bets fiscal progress will make it easier for the Fed to reduce monthly bond purchases.
Crude finds support at mid-Cycle.
— After testing Intermediate-term resistance at 98.50, crude found support at mid-Cycle at 96.25. A close above mid-Cycle support indicates more bullish activity may follow The rally appears young and as yet undeveloped. Once it breaks above weekly Intermediate-term resistance at 98.50, the rally may gain even more strength. The rally has the capability of stretching through late January, giving it the time it needs to develop more fully.
China stocks reverse at mid-Cycle resistance.
–The Shanghai Index rally fizzled at mid-Cycle resistance at 2227.38, confirming a bearish left-translate Cycle turn. SSEC made its Master Cycle low on November 14, so a reversal December 4 (less than 30 days) is very bearish. A decline through mid-January may be in order, just for starters.
(ZeroHedge) Which brings us to point number two: the latest target of the Chinese hot money colonization is none other than bankrupt Detroit.
Forbes explains: Detroit, broke with almost no prospects for recovery, is the fourth most popular U.S. destination for Chinese real estate investors. In fact, it was bad news—the city’s July 18 bankruptcy filing—that triggered renewed interest. “While the bankruptcy is viewed as a bad thing elsewhere, it raised the exposure level of Detroit’s real estate market in China,”says Evonne Xu, a Michigan attorney catering to Chinese purchasers. Middle Kingdom, meet Motown.
Has the India Nifty is repelled by its Cycle Top.
— The India Nifty reversed down from its Cycle Top for the 4th time in 12 months. It also may have touched the top trendline of ita Orthodox Broadening Top formation for the third time. This suggests the current Cycle may resume its decline into the end of December or early January. The decline may be deflationary to an extreme. The potential for a panic decline to the weekly Cycle bottom (4738.90) is very high.
The Bank Index showing signs of weakness.
— BKX continued to show weakness, closing just above its Short-term support at 66.28 this week. Intermediate-term support and the trading channel trendline are just below at 64.89. Next week BKX may be involved in a Flash Crash.
(ZeroHedge) The realization that RBS is not exactly populated by the sharpest tools in the shed first hit roughly two years ago, when its crack fixed income team was fined $1.9 million for not knowing the difference between Price and Discount, as was shown in the Dynegy CDS settlement auction. However, that episode was rocket surgery compared to what Bloomberg’s Jonathan Weil uncovered, which rightfully prompted him to award RBS the “dumbest bank of the year” award for 2013.
(ZeroHedge) Curious how much the various banks who stood to be impacted by or, otherwise, benefit from either a concentration or dilution of the Volcker rule? According to OpenSecrets, which crunched the numbers, here is how much being able to continue prop trading meant to some of the largest US banks and lobby groups:
(ZeroHedge) Volcker Rule – Who cares? I know we are supposed to care more about this convoluted rule, but we just can’t.
The concept that somehow “prop” trading brought down the banks seems silly. The idea that market making desks were a dangerous part of the equation is ludicrous.
They could have fixed this with a few simple changes, but that would have meant some blame would have had to be shifted onto the regulators…
Who would have thought???
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
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