Weekend Update | www.thepracticalinvestor.com
March 7, 2014
— VIX broke out above its weekly mid-Cycle resistance at 15.57and pulled back, remaining above prior lows. This is the prelude to a probable run to the top of the chart that may occur before month-end.
SPX is repelled again by Cycle Top resistance.
SPX rallied again to its weekly Cycle Top resistance at 1885.55, but was repelled on Friday before breaking through. This may be the final point 5(b) of an Orthodox Broadening Top, often called a 5-point reversal pattern. The SPX currently has 7 points within its Megaphone pattern, a rare anomaly. The upper trendline of the Bearish Wedge acted as a suport this week in a second throw-over pattern. I had previoously mentioned that, “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) 5 years ago today, the S&P 500 made its post-crisis low at the oddly demonic 666 level. What many may not remember is… the last so-called-at-the-time “secular” bull market lasts exactly 5 years and 1 day (from October 10th 2002 to October 11th 2007)… it’s different this time though.
NDX probes the tops of two bearish formations.
NDX probed its bearish Wedge and Ending Diagonal formations this week. This indicates that the two-year, seven-month rally may be coming to an end. A reversal occurred on Friday that portends some follow-through on Monday.
(ZeroHedge) The knee-jerk reaction to a better-than-expected (and entirely noise-driven) payroll number (with a rise in the unemployment rate) is a rip higher in stocks and collapse in bonds and precious metals. The USD is surging as USDJPY instantly hit 103.50 (breaking through its 50DMA) providing all the juice stocks need to test that critical Goldman 1,900 year-end target for the S&P 500. It seems, just as we warned earlier, “whatever the number, the algos will send stocks higher – that much is given in a blow off top bubble market in which any news is an excuse to buy more.”
So, whose money is propelling the markets?
The Euro completes a Diagonal formation.
The Euro challenged its weekly Cycle Top at 139.08 on Friday. Friday was a doubly indicated Pivot day, so it appears to have completed a bearish Ending Diagonal formation. Will the Ukrainian situation worsen this weekend?
(ZeroHedge) Perhaps it is time to finally admit that anyone who thought Putin’s Tuesday press conference, which the market so jubilantly assumed was a case of “blinking” and de-escalating tensions with the west, was wrong. If there is still any confusion, following yesterday’s news that Gazprom officially threatened Ukraine with cutting off its gas supplies, as well as the storming of a Ukraine base by Russian troops – luckily with no shots fired so far – then today’s developments should any remaining doubts. Moments ago AP reported that as the latest, third in a row, group of OSCE inspectors tried to enter Ukraine, they were not only barred from doing so, but warnings shots were fired to emphasize the point by pro-Russian forces.
EuroStoxx
The EuroStoxx 50 index reversed this week without overtaking the January 21 high. It closed just above weekly Short-term support at 3092.69 after challenging weekly Intermediate-term support at 3068.73. EuroStoxx leads its currency counterpart, the Euro. It suggests that, if the EuroStoxx loses its support, then the Euro will follow.
(ZeroHedge) About an hour ago (March 5), the head of Russia’s top natural gas producer Gazprom said on Wednesday that Ukraine had informed the company it could not pay for February gas deliveries in full, further adding to tensions between Moscow and Kiev. Alexei Miller said Ukraine’s total debt to Gazprom for gas deliveries was nearing $2 billion. “Our Ukrainian colleagues informed us that they would not be able to pay in full for February gas deliveries,” he told Russian President Vladimir Putin.
As reported by Reuters, Miller added that Ukraine managed to redeem only $10 million on Wednesday from a total debt of $1.529 billion. He said that Ukraine’s debt would rise by $440 million on March 7, a deadline for payments. In other words, as of this moment the Ukraine already owes Russia $2 billion, or about double what John Kerry announced to much fanfare, the US would provide the country with in terms of aid.
The Yen violates its supports.
The Yen fell beneath weekly Intermediate-term resistance at 97.24 in an unmistakable breakdown. Further decline is anticipated by the Cycles Model. The next break of the Head & Shoulders neckline may bring the Yen beneath its 2008 lows.
(SeekingAlpha) The Yen (FXY) carry trade was a popular vehicle for profits by the big banks in the mid-2000’s. A carry is when an investor borrows at a low interest rate in one country (Japan for instance) and then buys a strong currency or asset in another country such as the United States (VNQ) or Europe (VGK) that has a higher interest rate. The investor collects the interest and may even pocket currency gains.
Right now the Yen Carry trade is back in full effect as the Yen falls and markets in countries with higher interest rates around the world climb.
The Nikkei retraces to Intermediate-term support.
The Nikkei has spent the past year decoupling its inverse relationship to the Yen. As with any “good thing,” it has been overdone and now there is a potential to have the “good effects” of money printing start to unwind. The index retraced 56.6% of its decline, but stalled last week beneath weekly Intermediate-term resistance at 15350.00 and may be in a position to resume its decline beneath the Head & Shoulders neckline…
(Reuters) – Japan’s Nikkei share average rose to a new five-week high on Friday morning as a weak yen lifted risk appetite following Wall Street’s gains on better-than-expected U.S. jobless claims and the European Central Bank’s decision to keep its rates unchanged.
The Nikkei gained 1.1 percent to 15,307.78, the highest since Jan. 29 after rising 1.6 percent on the previous day. For the week, the index has added 3.1 percent.
U.S. Dollar extends its final Cycle low.
The dollar extended its Master Cycle low yet another week. This appears to be the final low of this series of declines. 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 weeks.
(Reuters) – The dollar climbed on Friday, boosted by an unexpectedly large jump in U.S. jobs growth that set off enough buying to lift the greenback from a four-month low.
The U.S. dollar index .DXY, a composite of six currency pairs which earlier on Friday had hit a bottom of 79.433 last seen on October 29, reversed course after the release of February’s U.S. employment data, touched a high of 79.847, and was ahead 0.07 percent for the day at 79.710 late on Friday.
Treasuries reverse from the declining Trading Channel.
Treasuries reversed from the declining Trading Channel at 132.96 and now challenge the lower trendline of the Broadening Wedge at 131.50. The Cycle turn was made from a high instead of a low. However, we may see a surprise collapse in bonds over the next month.
(ZeroHedge) While the comments by Russian presidential advisor, Sergei Glazyev, came before Putin’s detente press conference early this morning, they did flash a red light of warning as to what Russian response may be should the west indeed proceed with “crippling” sanctions as Kerry is demanding. As RIA reports, his advice is that “authorities should dump US government bonds in the event of Russian companies and individuals being targeted by sanctions over events in Ukraine.” Glazyev said the United States would be the first to suffer in the event of any sanctions regime.
Gold no longer closing at the highs.
Gold lengthened its retracement to 69% on Monday, but eased away from the top for the rest of the week. 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.
The gold bulls are out arguing their case again.
(ZeroHedge) Société Générale (“SocGen”) recently published a special report entitled “The end of the gold era” that garnered far more attention than we think it deserved. The majority of the report focused on SocGen’s “crash scenario” for gold wherein they suggest that gold could fall well below their 2013 target of US$1,375/oz. It also included a classic criticism that we’ve heard so many times before: that the gold price is in “bubble territory”. We have problems with both suggestions.
Crude reverses at a 66% retracement.
Crude made a higher peak on Monday then proceeded to make a bearish reversal candle. It now may be ready for a swift decline. There is a Head & Shoulders formation at the base of this rally may be overshadowed by the Cup with Handle formation, with an even deeper target.
(Bloomberg) A push by Warren Buffett’s railroad to boost oil-shipment safety is meeting resistance from Hess Corp. (HES) and other companies that say the plan would mean a surge in costs and force them to scrap thousands of tank cars.
A series of accidents including a Quebec crash that killed 47 spurred Buffett’s BNSF Railway Co. along with Union Pacific Corp. (UNP) to back new standards requiring older cars to be modified or junked. Shippers and railcar lessors balk at the potential cost of more than $5 billion and say carriers’ operating errors are to blame for fiery derailments like BNSF’s in December.
China stocks consolidate above Short-term support.
The Shanghai Index bounced back above Short-term support at 2054.89 in a consolidation move. Last week’s decline beneath Short-term support weakened it ability to keep the index above that level. The secular decline may now resume with the next significant low in mid-March. There is no support beneath its Cycle Bottom at 1943.94.
(ZeroHedge) UPDATE: It’s happened – China has suffered its first domestic corporate bond default as Chaori fails to meet interest payments on schedule and rather more surprisingly failed to receive a last-minute mysterious or otherwise bailout…
*CITIC BANK WON’T HELP CHAORI MAKE INTEREST PAYMENT: 21ST HERALD
*SHANGHAI CHAORI DEFAULTS ON BOND INTEREST PAYMENTS, WSJ SAYS
The deleveraging is now spreading to copper prices (remember the massive cash-for-copper schemes of last year) as borrowers are forced to sell to meet cash calls which in turn drops copper prices, reducing collateral values and tightening credit conditions even more. This is the biggest copper price drop since Dec 2011…
The Banking Index remains beneath its trendline.
BKX broke above its weekly Short-term resistance and trading channel trendline at 69.07, closing at a new high this week. This confirms a new Broadening formation with bearish consequences. The Cycles Model suggests a new low may be seen by the end of March, which heightens the probability of a flash crash.
(ZeroHedge) As we warned on Friday, the military escalation in Ukraine has had dire consequences for the financial state of the country, its banks, and ultimately its people. The central bank promised to rescue domestic banks so long as they agreed to its complete control and it appears the first consequences of that “we are here to help you” promise is coming true:
UKRAINE’S PRIVATBANK LIMITS ATM WITHDRAWALS TO UAH1,000/DAY ($103/day)
(ZeroHedge) Perhaps surprisingly, Germany’s DAX index was the weakest in Europe today as the Russia-Ukraine debacle escalates, underperforming high-beta “safe-havens” like Spain and Italy (which also fell rather notably). Despite the 2.5% to 3% declines across all major European equity markets, sovereign bond spreads barely budged! Seriously, Italian and Spanish bond spread rose a mere 5bps on the day. European banks collapsed 3.6%, its biggest drop in 6 months.
(ZeroHedge) Following a 150bps rate hike by the central bank – the largest since the 1998 default -desperate to halt capital outflows and a collapsing currency, Russian stocks have crashed 11% led by some of the country’s largest banks. USDRUB rose to just shy of 37 – the weakest RUB rate on record – but rallied back a little on the rate hike but the MICEX stock index tumbled 11% to almost 2-year lows with Sberbank (Russia’s largest bank) down 17% and VTB (2nd largest bank) down 20%.
(ZeroHedge) “This extensive review of documents, e-mails and other records has to date found no evidence that Bank of England staff colluded in any way in manipulating the foreign exchange market or in sharing confidential client information,” the Bank of England said today in a statement. Yet, as Bloomberg reports, a staff member was suspended amid the probe of a widening rigging scandal though “no decision has been taken on disciplinary action.”
(Reuters) – Banks will return 11.401 billion euros ($15.78 billion) in crisis loans to the European Central Bank next week, more than six times than the amount that was expected, accelerating the drain of extra cash out of the euro zone financial system.
The amount banks will repay on March 12 beat this week’s repayments of 3.012 billion euros and is more than the 2.1 billion forecast in a Reuters poll… Many banks used the cheap funds to buy higher-yielding government debt and next week’s hefty repayment could be “mainly related to the expiring of some short-dated Italian bonds in early March”, Annalisa Piazza, analyst at Newedge Strategy, said.
Are the Italians capable of repaying their loans?
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. Cherniaw
