Weekend Update
February 21, 2014
— VIX closed above its cluster of weekly Model supports after challenging weekly mid-Cycle resistance at 15.69. VIX held steady this week, a non-confirmation of the SPX rally attempts.
SPX closes above the Wedge formation a second week.
After piercing the lower trendline of its Orthodox Broadening Top (Megaphone formation) at 1748.00, SPX continued to consolidate above the Wedge trendline. Phase 7 of that patternHas lingered for another week without making a new high. The Phase 8 may be a potential crash, since this is a major reversal pattern. The Bearish Wedge implies a probable reversal to its origin. A new record high will not negate the effects of a Bearish Wedge or the Broadening Top. It only postpones it. Many bearish technicians are now bullish, not recognizing the bearish reversal pattern.
(ZeroHedge) “Of course, there are those who see these charts and through no self-referential cognitive-dissonance of their own (well in fact entirely for that status quo engendering reason) will proclaim… that proves it – US is cleanest dirty shirt and money is flooding back to ‘safety’ – however – that is entirely disingenuous…”
NDX stalls at a 13-year high.
NDX made a new high this week, testing its Broadening Top trendline, but closed at a small loss for the week. This type of rally is a bull trap, keeping investors reassured that all is well. Monday may be a key reversal day for all the indices, according to the Cycles Model.
(ZeroHedge) In the spring of 2012, we predicted that not only would corporate excess cash not go toward such core economic recovery “uses of funds” as CapEx, not only for the simple reason that there was, and is, no actual recovery, but that in order to create the artificial impression of improving conditions, as well as the satisfy activist investors seeking a quick ROI, companies would spend the bulk of their cash on stock buybacks and dividends. Gradually, this cash use is shifting to M&A – a classic ‘top of the cycle’ indicator – although courtesy of the unprecedented bubble in various sectors, tech most notably, corporations are opting to chiefly use overvalued stock as the currency of acquisition (see the recent purchase of Whatsapp by Facebook, funded mostly through FB stock) instead of cash.
The Euro’s head fake may be over.
The Euro broke out of its consolidation, but has heavy Cycle Top resistance overhead. The inability to make a new high indicates this may be a bearish head fake.
(Bloomberg) Ukrainian parliament Speaker Oleksandr Turchynov, handed presidential powers as lawmakers prepare to form a coalition government, warned that the economy was in a “pre-default situation.”
Lawmakers in Kiev worked on reshaping government after ousting Viktor Yanukovych from the presidency for a role in the violence that killed at least 82 people last week. The U.S. and the European Union pledged aid for a new cabinet. Border guards stopped Yanukovych at an airport in the eastern city of Donetsk two days ago. He wasn’t detained.
The Yen closed beneath Intermediate-term resistance.
The Yen slipped beneath weekly Intermediate-term resistance at 97.67, closing beneath it for the first time in two weeks. Further decline is anticipated by the Cycles Model. The next break of the Head & Shoulders neckline may bring the Yen beneath its 2008 lows.
(Bloomberg) The yen — which weakened last week against eight of 16 major counterparts tracked by Bloomberg — was little changed at 102.49 per dollar following a 0.7 percent decline last week, the steepest weekly drop in 2014. Ending deflation in Japan will benefit the global economy, central bank Governor Haruhiko Kuroda said at the G-20 in Sydney.
U.S. Dollar is edging up to the Triangle trendline.
The dollar declined even more this week before edging up to its Triangle trendline at 80.40 by Friday. The expected Master Cycle low arrived on Tuesday. A reversal above the trendline reinstates the bullish view on the Dollar. The dollar shorts may have to deal with the reversal in the coming week.
(Reuters) – Asian stocks wobbled and the dollar firmed in early trade on Monday, as investors appeared to give no more than a passing nod to the Group of 20’s latest commitment to spur faster global growth.
The dollar edged up against a basket of currencies after posting its first weekly gain in three weeks. The dollar index rose to 80.254, moving away from last week’s low of 79.927 touched on Wednesday, which was its lowest since late last year
Treasuries stall above the Broadening Wedge.
Treasuries stalled above Broadening Wedge trendline and weekly Intermediate-term support at 130.79. The Cycles Model suggests a renewed decline into the end of February or early March.
(WSJ) Treasury prices fell Thursday for a second-straight session as investors brushed off another round of disappointing U.S. economic data and focused on the Federal Reserve’s push to reduce monetary stimulus.
Benchmark 10-year notes fell 4/32 in price to yield 2.75%, according to Tradeweb. The 30-year bond lost 9/32 to yield 3.723%. Two-year notes edged down a fraction to yield 0.322%. Bond yields rise when prices fall.
Gold holds above Long-term resistance.
Gold stayed above Long-Term resistance at 1310.19 but began to falter after making a 58.4% retracement of the prior decline on Tuesday. The Cycles Model calls for a month-long decline that may break through the Lip of a Cup with Handle formation. The potential consequences appear to be severe. See the article below to gauge the sentiment of the press.
(ZeroHedge) As China News reports, in a gold shop in Taiyuan, Shanxi Province, a “tyrant female” (Google Translate must have loved that one) bought more than 880 grams of gold jewelry. Lunch boxes were used to weigh the gold and it left other shoppers speechless with admiration.
Crude completes a 56% retracement.
Crude peaked on Wednesday, closing lower, but with a gain for the week. It had managed to complete a 56% retracement of its decline from 112.24 and now may be ready for a swift decline. There is a Head & Shoulders formation at the base of this rally, which, if pierced, may lead to a much deeper decline.
(WSJ) Crude oil from North Dakota’s Bakken Shale formation contains several times the combustible gases as oil from elsewhere, a Wall Street Journal analysis found, raising new questions about the safety of shipping such crude by rail across the U.S.
Federal investigators are trying to determine whether such vapors are responsible for recent extraordinary explosions of oil-filled railcars, including one that killed several dozen people in Canada last summer.
China stocks challenge mid-Cycle resistance.
The bounce from the January 20 low made a final probe to weekly mid-Cycle resistance on Thursday, but couldn’t hold above weekly Long-term resistance at 2126.83 by the close of the week. The secular decline may now resume with the next significant low in mid-March. There is no support beneath its Cycle Bottom at 1949.25.
(ZeroHedge) As we warned last week, stockpiles of iron-ore have reached record levels in China as end-demand slumps but, as Bloomberg notes, this is potentially creating massive dislocations in other markets. Record imports of iron ore and copper, driven by traders who use them as loan collateral, risk repeating the vicious cycle of repayment difficulties and falling prices already seen in the steel-trading market. A stunning 40 percent of the iron ore at China’s ports are part of finance deals(having replaced copper after China’s last shadow-banking crackdown) and with the glut, prices drop (driving down the value of collateral on loans) and “borrowers, forced by their bankers to repay loans or to top up collateral, will have to sell the metals, sinking market prices even further and begetting a vicious cycle.”
The India Nifty bounces to Intermediate-term resistance.
The CNX Nifty bounced from its Long-term support to challenge Intermediate-term resistance at 6174.09. The challenge may not be over, but once the reversal occurs, the potential loss of Long-term support could be deadly for India stocks. The Cycles Model calls for a decline through mid-May. Could there be some economic disappointments ahead?
(TimesofIndia) Categorically denying the possibility of a military coup in India, defence minister A K Antony said on Sunday he had full faith in the armed forces and assured they would follow instructions given by the civilian government in policy matters.
“I have been in constant touch not only with top officials in the army, navy and air force but also with the jawans and those guarding our borders,” Antony said after presenting awards to coast guard personnel at a ceremony. “I have full faith in the military forces. There isn’t even the remotest chance of a military coup in the country.”
Trouble brewing?
The Banking Index is struggling beneath its trendline.
BKX attempted a challenge of weekly Short-term resistance and trading channel trendline at 68.87, but failed to close above it for a third week. The uptrend line is broken and, more importantly, stands as a resistance to any further rally. The Cycles Model suggests a new low may be seen in the next two weeks. Might there be a flash crash?
(TheEconomist) The economics of international banking are straightforward enough: raise funds in countries where they are cheap, lend where they are dear. Done right, this is both lucrative for bankers and good for the world, by channelling savings to their most productive use. Those economics have begun to come apart over the past five years, battered first by the excesses of profit-seeking bankers and now by regulators. On February 18th the Federal Reserve Board voted to “ring-fence” foreign banks’ American operations, forcing them to meet the same standards for capital and liquidity as American banks, rather than allowing them to rely on their parents’ buffers.
(Bloomberg) Royal Bank of Scotland Group Plc Chief Executive Officer Ross McEwan moved to reassure employees that there will be “no big announcement” on job cuts when the lender publishes the results of its strategic review next week. “This type of thing is frustrating and unsettling,” McEwan, 56, wrote in a memo to employees today. “This has been building over recent weeks and months and was always to be expected ahead of our strategy update.”
(ZeroHedge) Six months ago a “glitch” halted all ATM withdrawals, and Credit and Debit card transactions for Russia’s largest bank but today, the CEO of the huge bank has no such “glitch” to blame:
*SBERBANK SEES RUN ON ITS BANK MACHINES IN UKRAINE, GREF SAYS
*UKRAINE SITUATION IS PRESSURING RUBLE: SBERBANK CEO GREF
*SBERBANK HALTS LENDING IN UKRAINE, GREF SAYS
We suspect that whether an agreement is in place or not, this will continue.
(ZeroHedge) While, for now, depositors at Austria’s Hypo-Alde-Adria-Bank (nationalized in 2009) have not had assets confiscated, Austrian authorities are shifting in an unusual (scary precedent-setting) direction. Amid the resignation of the bank’s CEO, the government is taking aim at ‘speculators’ who dared to buy the bank’s bonds below par – and made money therefore on the back of the taxpayer. “What financial markets expect is not always what you want politically,” Austria’s finance minister warned, “if someone buys today at a lower price, saying ‘shortly, I’ll get 100 back,’ that’s what’s agitating the people. “It seems Europe has a new template.
Have a great week!
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
www.thepracticalinvestor.com
Office: (517) 699.1554
Fax: (517) 699.1558
Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security. The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model. At no time shall a reader be justified in inferring that personal investment advice is intended. Investing carries certain risks of losses and leveraged products and futures may be especially volatile. Information provided by TPI is expressed in good faith, but is not guaranteed. A perfect market service does not exist. Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment. Please consult your financial advisor to explain all risks before making any investment decision. It is not possible to invest in any index.
The use of web-linked articles is meant to be informational in nature. It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.