Weekend Update – www.thepracticalinvestor.com
January 24, 2014
— VIX vaulted past its mid-Cycle resistance and the December high at 16.75 this week in its largest jump in 6 months. This confirms the change in trend. It is now due to break through the Triangle trendline near 21.00 and challenge the weekly Cycle Top resistance at 22.42.
SPX is now inside the Ending Diagonal.
— SPX plunged through the upper trendline of its Ending Diagonal after its worst week in 19 months, closing above weekly Intermediate-term support at 1787.17. 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 while testing support for both the bottom trendline of the Ending Diagonal and the 14-year trendline shown in the chart. Beneath those two supports may be a possible free-fall event.
(Bloomberg) U.S. stocks sank the most since June, capping the worst week for benchmark indexes since 2012, as a selloff in developing-nation currencies spurred concern global markets will become more volatile.
NDX slips below its trendline.
— NDX closed the week beneath the upper trendline of its Ending Diagonal formation closing above weekly Short-term support at 3521.22. The 4.8 year rally may now be finished. The next confirmation of a reversal would come with a further decline below the Cycle Top support/resistance line at 3497.83.
(ZeroHedge) While the world of speculative capital is focused intently on the Twitter and Facebook #Ref/0 fundamental valuations in the publicly-traded equity markets, as the WSJ illustrates, the real dot-com 2.0 bubble is occurring in the private markets. Today there are more than 30 companies in the US, Europe, and China that are valued at $1 billion or more by venture-captal firms and the club is becoming less exclusive as venture capitalists (in their ever growing speculative fervor) funnel large sums of capital into start-ups.
The Euro rallies while Kiev burns.
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— The Euro appears to have completed a 56% retracement of its initial decline from the top of Primary Wave [2]. It closed above both Short-term support at 136.63 and Intermediate-term support at 136.13, but may have little trouble slipping beneath them. Final supports are at 133.40 and 130.95, beneath which the Euro decline may accelerate.
(ZeroHedge) It will be a long night in Kiev:
KIEV CLASHES RESUME BETWEEN PROTESTERS, POLICE: CHANNEL 5 TV
KIEV PROTESTERS ATTACKED AFTER POLICE INJURED ACTIVIST: TV 5
UKRAINE PROTESTERS THROW MOLOTOV COCKTAILS, ROCKS AT POLICE
UKRAINE POLICE RESPOND WITH RUBBER BULLETS, STUN GRENADES
UKRAINE POLICE BLAME PROTESTERS FOR BREAKING TRUCE: STATEMENT
The Yen makes a final bounce before the plunge.
–After it challenged the Head & Shoulders neckline at 95.50, the Yen bounced through Short-term support and may be aiming for Intermediate-term resistance at 98.79 by mid-week. A breakdown through the neckline of the massive Head & Shoulders formation suggests a continuation of a Primary Wave [5] in a very strong decline that may last through mid-February.
(Reuters) – Emerging market currencies were battered on Friday as global investors scrambled for shelter from a broad financial markets selloff by buying dollars, yen and Swiss francs.
The Japanese yen surged to a seven-week high against the dollar, while the Swiss franc touched a four-week peak against the euro as U.S. stocks tumbled and safe-haven Treasuries gained.
The US Dollar tagged the Triangle trendline again.
— USD touched the lower trendline of the massive Triangle formation this week at 80.22, closing beneath the entire Cycle Resistance cluster. This move may not necessarily be considered bearish, since the dollar did not make a new low and a possible double Cycle low is due by Monday. The Cycle Model suggests the next rally may last through the end of February (possibly longer) that may bring the USD above its inverted Head & shoulders pattern shown in the chart.
Gold rallied to the trendline of its weekly Trading Channel.
— Gold rallied to the upper trendline of its trading channel and weekly Intermediate-term resistance at 1268.80, closing there. A bearish Cup with Handle formation may be triggered beneath the Lip at 1181.40, so be prepared for that eventuality once gold turns back down. There are simply too many goldbugs who have called for a bottom to be a valid one.
(Reuters) – Congress party chief Sonia Gandhi (India) has asked the government to review tough import restrictions on gold, which include a record 10 percent import duty, a television channel and a news website said on Thursday.
Her intervention is likely to create pressure for an easing of rules that have hammered the bullion industry and brought a surge in smuggling, but the finance minister said the curbs would not be rolled back anytime soon.
Treasuries escape their Trading Channel tendline.
— USB surged past the upper trendline of its Trading Channel, which causes some technical uncertainty. Normally an impulse Wave will stay within the channel defined by its highs and lows until it completes all five waves. Usually Wave (5) would go much deeper, possibly all the way to the lower trendline before being complete. So, this occurrence may be an anomalous Minor Wave 2 correction instigated by the sell-off in stocks and a technical bounce from the 32.25-year rising trendline in the long bond. A major dealer is making such a claim. If so, this could be a bull-trap for those seeking a safe haven in Treasuries.
Is this the final bounce before the plunge?
— Last week I had suggested that Crude had completed its bounce from the neckline of its Head & Shoulders formation. I had miscalculated. It appears that the bounce may now be over and a stunning decline may be in order.
(OilPrice.com) The year 2014 could pose a milestone for the U.S. oil industry. In its latest annual World Energy Outlook, the International Energy Agency predicted that the U.S. would become the world’s largest producer of oil by 2015, thus surpassing Russia and Saudi Arabia.
Comparably, the U.S. Energy Information Administration estimates that the U.S. will produce 9.6 million barrels of oil per day by 2016. In less than a decade, the shale revolution in the U.S. has reversed a four decade-old trend of increasing oil imports to become a major exporter by the end of this decade.
China bounces from its Cycle Bottom.
–The Shanghai Index completed an impulsive decline from its upper trading channel trendline and bounced near its Cycle Bottom support at 1963.24. The bounce may be complete, or nearly so, giving SSEC a high probability of making new lows. The duration of this decline may not be finished until late February to mid-March..
(ZeroHedge) China faces a very significant test of its reform policy pursuit rhetoric. With China’s Bank regulator set to issue an alert on coal-industry loans – “as a result of outout cuts, they don’t have much cash flow and thus they can’t repay loans and debt,” the massive growth in wealth products such as the CEG#1 (which offered a 10% yield for a 3 year term) based on these loans leaves the Chinese with a moral hazard dilemma – bailout or no bailout. ICBC has made it clear it wil not bailout investors since reputational damage would be “well manageable,” and former-PBOC adviser Li Daokui adds that “a controlled default is much better than no default,” noting critically that trust defaults “will teach future investors a very important lesson.”
The India Nifty bounces from Intermediate-term support.
— The India Nifty may have completed its retracement after bouncing from Intermediate-term support at 6172.98 two weeks ago. The decline may now resume and 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 (4787.24) is very high.
The Bank Index closes beneath Short-term support/resistance.
— BKX declined and closed beneath weekly Short-term support/resistance at 68.69. The 50% Fibonacci retracement of its 2007 to 2009 decline is at 69.46 suggesting a retracement is complete and the current Cycle is primed for a reversal. The resumption of the secular bear market may be most spectacular in BKX.
(ZeroHedge) Following research last week suggesting that HSBC has a major capital shortfall, the fact that several farmer’s co-ops were unable to pay back depositors in China, and, of course, the liquidity crisis in China itself, news from The BBC that HSBC is imposing restrictions on large cash withdrawals raising a number of red flags. The BBC reports that some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it.
(ZeroHedge) Curious why over the past few months JPM has quietly been accumulating a substantial amount of eligible physical gold (even as its registered gold inventory is the lowest it has ever been at just 87K ounces since December 13, 2013 when 147K ounces of gold was withdrawn – keep that date in mind for a few minutes)? This may have something to do with it: moments ago the daily Comex gold vault report confirmed what many expected, namely that the JPM accumulation was merely in advance anticipation of major withdrawals. How major? Well, on January 23, JPM saw 321,500 ounces of gold depart in one day. This was tied for the single biggest daily withdrawal in history!The last time JPM had an identically sized withdrawal? December 13…. 2012.
(TheNewYorkTimes) Some banks in the euro zone could go out of business as a result of intense official scrutiny they will face this year, Mario Draghi, the president of the European Central Bank, said Friday as he presented a generally upbeat view of the European economy that was, however, laced with warnings.
The E.C.B. is scouring the books of euro zone banks this year in an effort to expose hidden problems and restore trust in the integrity of European lenders. Mr. Draghi said he did not know whether any banks would need to be shut down following an honest appraisal of their financial health. But if so the E.C.B. and euro zone governments are prepared to deal with the consequences, he told an audience at the World Economic Forum in Davos.
(ZeroHedge) Earlier this week we reported that at JPMorgan, the many will pay for the crimes of the few, after the bank revealed that compensation for most workers would be flat with 2012, and no raises were planned for the bank’s employees as a result of the massive, $20+ billion legal bill the bank has raked up in recent months as one after another market manipulation, fraud and malfeasance by current and former JPM workers has been revealed. One person, however, will be exempt from this blanket punishment: the firm’s CEO Jamie Dimon, of course. Because there is always a reason Jamie is richer than you…
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
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