Weekend Update
January 10, 2014
— VIX made a very deep 84.5%retracement of the rally from its Primary Wave [5] low on December 26. Preliminary evidence of a reversal may come with a breakout above its January 2 high at 14.59. Confirmation of a change in trend lies at 16.26 to 16.75.
SPX no longer making new highs.
— SPX made four probes at a new high this week, but failed to overcome daily Cycle resistance between 1843.00 and 1845.00. The Orthodox Broadening Top, otherwise known as a “Megaphone” pattern, is still the key formation at this juncture. A decline from this peak through the bottom trendline of the Broadening Top completes the formation and sets up the initial downside target.
(ZeroHedge) Late last night the music may have just skipped a major beat after Goldman released a Friday evening note that is perhaps the most bearish thing to come out of Goldman’s chief strategist David Kostin in over a year, (and who incidentally just repeated what we said most recently a week ago in “Stocks Are More Expensive Now Than At Their 2007 Peak“). To wit:
S&P 500 valuation is lofty by almost any measure, both for the aggregate market (15.9x) as well as the median stock (16.8x). We believe S&P 500 trades close to fair value and the forward
path will depend on profit growth rather than P/E expansion.
NDX closes the week at its trendline.
— NDX closed the week at the upper trendline of its Ending Diagonal formation without making a new high this week. The 4.8 year rally may now be finished. Initial confirmation of that would come with a decline beneath the trendline followed by a further decline below the Cycle Top line at 3465.74.
(ZeroHedge) …David Stockman, author The Gret Deformation, notes Wall Street’s institutionalized fiddle of GAAP earnings made P/E multiples appear far lower than they
actually are, and thereby helps perpetuate the myth that the market is “cheap.”
The Euro declines, bounces from weekly supports.
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— The Euro declined to its weekly Intermediate-term support at 136.03, then bounced in a near-50% retracement. It may be done or nearly so with the retracement and appears ready to resume its decline this week. Final support is at 133.07 and 130.90, beneath which the Euro decline may accelerate.
(BBCNews) The President of the European Central Bank, Mario Draghi, has urged MEPs and EU governments to set up a “true banking union”.
Giving evidence to the Economic and Monetary Affairs Committee on 16 December 2013, he said he welcomed the agreement reached last week to set up common rules on a “resolution fund”. This means that each EU member state will build up a fund to help banks in trouble.
The Yen continues testing its Head & Shoulders neckline.
–The Yen has tested the Head & Shoulders neckline at 96.00 for a second week. The breakdown to a new low and the inability to rally above the neckline suggests a continuation of a Primary Wave [5] in a very strong decline that may last through mid-February.
The US Dollar closed beneath mid-Cycle resistance.
— After USD closed above its weekly mid-Cycle support/resistance at 80.98 it pulled back to its weekly Short-term support at 80.64. The Cycle Model suggests the next phase of the rally lasting through late January that may bring the USD above its inverted Head & shoulders pattern shown in the chart. Surprised Dollar bears may help make this rally a memorable one.
Here’s one dollar bear’s view…”Central banks around the world are increasingly diversifying their currency reserves away from the US Dollar. Even as overall holdings soar to a record $11.4 trillion, the US Dollar accounted for 61.44% (down from well over 65% at the peak of the crisis in 2008). With China outspokenly concerned at the US Dollar’s future status, we suspect this will only become more ‘diversified’.”
Gold bounces from a new Cup with Handle formation.
— Gold bounced from its new Cup with Handle formation at 1181.40 and appears to have closed at Short-term resistance at 1248.50. Indications are that gold may turn back down early next week. A bearish Cup with Handle formation may be triggered beneath the Lip at 1181.40, so be prepared for that probability. There are simply too many goldbugs who have called for a bottom to be a valid one. See below.
(ZeroHedge) It’s been one of the worst years for gold in a generation. A flood of outflows from gold ETFs, endless tax increases on gold imports in India, and the mirage (albeit a convincing one in the eyes of many) of a supposedly improving economy in the US have all contributed to the constant hammering gold took in 2013. Perhaps worse has been the onslaught of negative press our favorite metal has suffered. It’s felt overwhelming at times and has pushed even some die-hard goldbugs to question their beliefs… not a bad thing, by the way.
Treasuries retest the Broadening Wedge.
— USB bounced from its 32.25-year trendline, testing both the trading channel trendline (blue) and it Broadening Wedge trendline (red). The Broadening Wedge suggests a probable 20% loss beneath this resistance level. More importantly, the loss of a long term uptrend is in jeopardy, should it decline beneath 127.35.
(WSJ) Treasury bond prices rallied Friday as a disappointing employment report diluted concerns that the Federal Reserve could wind down its bond purchases at a faster pace in coming months.
The world’s largest economy added 74,000 jobs last month, the smallest gain in three years and sharply below 200,000 forecast by economists. The report stood in contrast with releases earlier this week that had showed employment gathering speed.
Crude challenges its Head & Shoulders neckline.
— Crude challenged the neckline of its Head & Shoulders formation this week. It may have more of a bounce next week, but we now have confirmation that a downtrend may already be in place. Upside movement, should it appear, may be inhibited by the weekly Short-term resistance at 95.63 and mid-cycle resistance at 96.26.
(Reuters) – A fire on a crude oil tanker on a Canadian National Railway Co train that derailed this week in New Brunswick was extinguished by Friday afternoon and CN said blazes on cars carrying liquid petroleum gas (LPG) would be put out shortly.
China approaches its Cycle Bottom.
–The Shanghai Index is approaching its Weekly Cycle Bottom support at 1972.13. this may set up a bounce next week back to the Model resistance cluster at 2140.93. Once the bounce is complete, it has a high probability of making some new lows. The duration of this decline may not be finished until late February to mid-March..
(ZeroHedge) Overnight China reported disappointing export data, missing expectations of +5%. The government explained this on the basis that they were losing their competitive edge since the Yuan has strengthened to 20 year highs but perhaps most telling is that fact that, as the FT reports, China became the world’s biggest trader in goods for the first time last year – overtaking the US for all of 2013.
The India Nifty caught between support and resistance.
— The India Nifty declined to Intermediate-term support, then bounced to Short-term resistance at 6176.74 this week. The decline may continue through mid-February. This decline may be deflationary to an extreme, since equities have become thoroughly saturated with liquidity from India’s central bank and simply cannot absorb any more. Indian investors are leveraged to the hilt. The potential for a panic decline to the weekly Cycle bottom (4756.17) is very high.
The Bank Index reaches its weekly Cycle Top.
— BKX has reached its weekly Cycle Top resistance at 71.14 this week. The 50% Fibonacci retracement of its 2007 to 2009 decline is at 69.46 and it is due for a weekly Cycle turn. The resumption of the secular bear market may be most spectacular in BKX.
(ZeroHedge) In a memo to employees today, Bank of America has made some ‘improvements’ to its recommendations for analysts and associates working hours…
*BOFA ANNOUNCES IMPROVEMENT IN WORKING CONDITIONS FOR JUNIORS
*BOFA SAYS JUNIOR BANKERS SHOULD TAKE 4 WEEKEND DAYS OFF A MONTH
(ZeroHedge) We are sure there is a joke in here somewhere but it is no laughing matter. Following a request for copies of 8 documents of correspondence between Ireland’s (former) finance minister and the nations’ largest bank executives, the Irish minstry of finance has been forced to admit that it cannot find two out of the eight. The documents, previously 100% redacted, raises questions as to whether other documents have gone ‘missing’. As RTE reports, the Department of Finance said it had carried out a widespread search for the documents and it was not clear why the original versions could not be located. Those darn leprechauns… We are sure, however, it has nothing to do with the Irish banks “picking bailout numbers out of their arses.”
(NYTimes) In his second-floor office above a hair salon in north Seattle, Ryan Kunkel is seated on a couch placing $1,000 bricks of cash — dozens of them — in a rumpled brown paper bag. When he finishes, he stashes the money in the trunk of his BMW and sets off on an adrenalized drive downtown, darting through traffic and nervously checking to see if anyone is following him.
Despite the air of criminality, there is nothing illicit in what Mr. Kunkel is doing. He co-owns five medical marijuana dispensaries, and on this day he is heading to the Washington State Department of Revenue to commit the ultimate in law-abiding acts: paying taxes. After about 25 minutes at the agency, Mr. Kunkel emerges with a receipt for $51,321.
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
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