Greece-ing the Skids. Wednesday, Mar. 31, 2010

by gmak

What if you threw a party and no one came? Greece, hot off of the moderately successful EUR$5 billion of 7-year notes, tried to place another EUR$1 billion with a 12-year tenor. Only 40% was placed (EUR$400 mm). Is this because of Greece default risk, the tenor /rate versus inflation expectations, or EUR risk? Now they plan a USD bond to try to raise $16 billion by the end of May. Tick. Tock.

Therein lies the rub. There are three strikes against the issue - and thank goodness that the bond vigilantes are pitching again – and Plan ‘B’ can’t be that good or it would have been Plan ‘A’.

Meanwhile, Citi has gone into the financial kitchen and has baked some CLOs. (check out ZH for details). Apparently, the size of the issue was increased due to demand. The more things change….. Maybe they can do something for Greece. Maybe Citi can take a truckload of Greece 12 year Euro debt, slice and dice it, and create something that end-runs the bond vigilantes into a pension fund near you.

Even though the credit spreads had narrowed on Irish banks, it turns out that they are on the hook for a EUR$32 billion hole in the loans transferred to the National Asset Management Agency. Apparently the loans are being purchased at a 47% Discount and not 30% as previously thought.

More gears going off center in the broken clock. If the FED is no longer supplying liqudity, someone has to do it in the shadow banking system. he BoJ is refusing to increase Japan Bond issues. “If a central bank continues to buy large amounts of debt while the government racks up a budet deficit, it MAY seem like the bank is monetizing, or financing, the deficit.” Even Japan gets it, why doesn’t Congress?

EQUITY

Asia was fully red except for India. Europe is green except for a few smaller markets. There was no GAP on the DAX and it is showing a continuation of yesterday’s close. Although just barely green, there is good breadth and this looks like consolidation after a sector rotation (financials, Utilities and health care are all red). I don’t have a read on Volume but lately it has been lower than the 15 day moving average more often than not.

Data

MBA mortgage apps were up 1.3% vs 4% prior. ADP employment change comes in at 8:15AM EDT with 40K (increase) expected vs -20K previous. 9:45 = Chicago purchasing manager with 61 expected vs 62.6 prior. 10AM = Factory orders, and NAPM Milwaukee.

I’m continuing to trade intra-day on EUR, JPY may be done for me. I’m looking for quick in and out on ES and Geronimo and Zero (even Rammstein) give me a good trigger to pull. I’m not convinced that there will be a big drop in the next  1- 2 weeks; more likely a drift up or down. Yesterday was the 21st day for SPX to be fully above the 55DMA. This could go on a while. There is more detail for subscribers.

I refined some of my numbers and only 1.2% of the time (when the DMA slope is positive) does SPX go back below the DMA during the 21 – 30 day period.  There is quite a high probability, therefore, that SPX continues to hug the upper trendline – or just slowly drifts downward.  The scary part is how often SPX is more than 50 days above the 55DMA. It’s about 1/2 the time once SPX has been up there for more than 20 days. Here are the numbers. There are 190 postive crossovers since 1961.

Days <= Frequency
0 0.0%
5 44.2%
10 16.8%
15 7.4%
20 1.6%
30 7.4%
40 5.3%
50 2.1%
More 15.3%

Yesterday’s bar shape was a 33 (1 is the lowest 20th percentile 5 is the highest on the size of the bar). The previous was a 14. This combination has only happened 3 times since 1982 – and there is an equal probability of OPEN > CLOSE, OPEN < CLOSE and OPEN = CLOSE (meaning close to each other).  Based just on yesterday, my opinion is that today will be similar. The probability of OPEN = CLOSE following a 33 is above 11% – which is quite high for this.

Here are the numbers for how big the daiy SPX bar can get.  Notice that it spends considerable time in a range of size 8 – 17. That’s some decent day-trading territory if you like the intra-day. I am having trouble with my charts via PC Paint for some reason – so I am open to ideas here (remembering that I am behind a fireway 1/2 the time).

BAR SIZE = % of SPX Frequency BAR SIZE
0 0.0% 0
0.25 0.1% 2.85
0.5 9.0% 5.7
0.75 18.6% 8.55
1 19.2% 11.4
1.25 15.3% 14.25
1.5 10.6% 17.1
1.75 7.8% 19.95
2 5.5% 22.8
2.25 3.7% 25.65
2.5 2.6% 28.5
2.75 2.0% 31.35
3 1.4% 34.2
3.25 0.9% 37.05
3.5 0.7% 39.9
3.75 0.5% 42.75
4 0.4% 45.6
4.25 0.2% 48.45
4.5 0.2% 51.3
4.75 0.2% 54.15
5 0.2% 57
5.25 0.1% 59.85
5.5 0.1% 62.7
5.75 0.0% 65.55
6 0.0% 68.4
More 0.5%

Look how SPX is leaning against the “Since Oct 21″ trend line like a Papparazo on a starlet’s car. SPX is being held up by the 10 DMA (orange dotted line). What is interesting is it looks like the 123% FIB at 1175ish is also acting as resistance. SPX has never been able to close above this line in the latest ramp from the lows in January. (by the way, the horizontal FIB lines are based on the Jan high and low). [If someone can tell me how to get a decent sized chart in PC Paint, I would appreciate it. For some reason my charts are a lot smaller than they used to be.]

Any drop for unexpected reasons would likely be supported by the “Since Aug 17″ trend line in purple, where the 21 DMA is just poking above – at the high from Jan. 2010.


ES is drifting – just like the DAX. There is decent resistance at 1169, and untested support at 1164.50. Pivots:

  • R2: 1178.50 = Too high for this type of market – fear and greed are battling, with distribution playing the part of the one who holds their wallets.
  • R1: 1174 = a probable target on a spike. I believe that this should be sold intra-day
  • Neutral: 1169 = The current roof. If it doesn’t hold, 1174 is the short target. If it holds, I think that 1159 will be the floor for a possible bounce BUY.
  • S1: 1164.50 = Not really tested – although rallies have begun here yesterday and overnight – quite the hair trigger here – no running along the line
  • S2: 1159.75 = Possible bottom of the range today – depending on how the 123% FIB and the pivot reject any SPX overtures (see daily chart above).

FX

Related to EUR risk is a little item that I came across that says the UK / EU repatriations usually take place on the last day of the month (today) and that there will demand for EURGBP – meaning that EUR is bought, GBP sold net. As well, preliminary indications from a major clearer is that the USD is likely to see weakness through all the cross pairs settling – as foreign entities take USD gains in their foreign portfolios and convert them to other currencies where the markets have not done as well (market rotation). The suggestion is to watch the London fixing at 10:00 GMT and 15:00 GMT in London, and the 12:15 GMT ECB fixing. (GMT time is 5 hours later than NY). I’ve never followed this month end repatriation – so I don’t know how reliable it is at this time. Last night there was a considerable bid under the dollar in almost all pairs, but the weakness started around the Europe open. The stops at EURJPY = 125.50 were run by a mack truck. BoJ must be quite happy.

IF you can see the channel FIBs in the chart (the ones running on an angle), you can see that EUR is being quite well-behaved and using them as resistance and support. The move on the EUR overnight, IMO, will not hold into next week (and possibly the week end). The bearish cross on the 10 and 21 DMA is a dominant traders’ sign – they really do pay attention to it unlike in equities. If you were to rank the agility and insight of a trader, I would have to say that it goes FX, fixed income, and then equities. It is the equity traders who seem to always be saying “unexpected”.

When the TD Pressure indicator goes above the red signal line, then EUR will be getting ready for the next leg down. BUt notice the intra=day movement. Any money that I make in FX happens there – I’ve only held JPY across days, and only in the last week.

Summary

SPX is not about to die. It may drift down but the odds say that there are still 9 trading days at least before it crosses below the 55 DMA. EUR is getting a bid from repatriation, and crosses that are working against the USD today. The daily chart for the EUR is bearish. I will range trade ES if the conditions are right (see the pivots above). I will go both ways on EUR – but not around 15:00 GMT. I’m not sure what I will do about JPY yet – given how close it is to the mythical 93.75ish level.

Have a great day trading! Cheers.

Living Inside a Broken Clock: Tuesday, Mar. 30, 2010

by gmak

The market can go up from here, or it can go down from here. SPX will do both – the question is how much and over what time frame. We are close enough to see how threadbare the financial weave really is, but do not kid yourselves, the Central Banks of the world will do anything they can to keep the liquidity flowing – within the framework of what they think is “just to the edge, but not over”.  They can’t all be right about where that point resides. I feel like I am watching stoned skate boarders attempting ever more difficult stunts – pushing the edge of the envelope, so to speak – until of course one of them exceeds their own abilities and the ensuing crash takes almost everyone else down with them. That is the specter on one hand. The other is that the liqudity continues to float all boats, keep the tide in so we don’t see who has no bathing suit (whatever analogy you care to use), until, somehow, the economy slowly grinds its way to the beginnings of health. Then, the risk becomes inflation. If Central Banks were that good at withdrawing liquidity, then we would never have the boom and crash cycles that seem to be part and parcel of the modern financial world. I continue to hope for the best, but plan for the worst. Tick. Tock. Tick. Tock.

This is a bit of a trial to see if I can get the new format down, so the post will be limited. If this works, tomorrow will be better as I can work on something interesting overnight. I am having Disqus problems. However I have found a way around it and hope to be able to see your comments, ideas, and reply to them. If you have suggestions or ideas about what you want to see – type away. . I will work on a better post offline tonight and be able to include charts in tomorrow’s post.

Equity

Asia was green last night, except for India, Malaysia, and Indonesia. Europe is green as well, except for a scattering of nordic countries. The DAX gapped up at the open, but has since closed that gap – remaining up. ES is trading higher by about 6 – 7 points and seems to be tracking the DAX closely. There is additional information and charts for subscribers.

As I have written, SPX keeps pushing against that “Since Oct 21″ trend line. Each time it puts a pin through it, the trend line weakens as resistance. Each time SPX fails to get through, it gets weaker. This is a slow race between momentum and exhaustion. Right now, SPX is being supported by the 10 DMA (which is the orange dotted line). If SPX closes below this, then it is a sign that the reversal is beginning. Notice that MACD is about to cross bearish. As well, TD Pressure has signalled a low risk SELL. Other TD indicators make it probable that SPX has to put in a full SELL countdown (the purple numbers above the green ones) which requires 13 bars where the CLOSE is above the HIGH of two bars earlier. They do NOT have to be consecutive. The count is at 10, meaning that we can expect a few more up days. I expect that today and tomorrow will be 11 and 12. A number of times, 13 never gets to form – but the TDST UP indicator says that it is likely that the countdown will go the full 13. I hope you’re not superstitious.

Bottom line: I believe that the trend will continue upward along the trend line – putting an occasional pin through, until price exhaustion permits SPX to close below the 10 DMA.  Tomorrow, I will speak more on the relationship with the 55 DMA, given that SPX has now been 20 days fully above. I would do it now, but I need to double check the results and time is fleeting. I am having Disqus problems (what else is new?) but if you reply to an earlier comment I will see it in my email.

Cheers.

I can’t get the chart to post. I think that there is some kind of negative interaction between my firewall and Mole’s software. Things will be better tomorrow because I will set everything up on another computer and then move it over as a complete document. In the meantime: ES Pivots:

  • R2: 1175 = RIght at the peak from Thursday. On a light volume weak like Easter weak (and Passover), there is no reason why we couldn’t see that level again. It would be another pin through the trend line.
  • R1: 1171.75 = Acted as a roof overnight. Looks like the top of the range for now and could be faded with a low risk trade – provided the stops are in place. Notice that R2 is only about 3 points away – hardly big risk, right?
  • Neutral: 1168 = This was the floor overnight, I don’t know how strong support is. If this is the floor today, then the top of the range is likely to be 1175.
  • S1: 1164.50 = This has been a support level over the last week at least. It would likely come into play. If 1171.75 is the roof today, this this would probably be the bottom of the range. I say this based on the “average” SPX daily candle size. There are few candles smaller than 6 points on any day. Most are 8 points and above.
  • S2: 1161 = We’ve tested this region twice on Firday (including the overnight). Looking at the trend in ES (on a 5 min chart), I don’t think that we will see this level – unless some unexpected event puts the fear back in the market.

Look at JPY, look at EUR. When both are strengthening, it means that the risk trade is likely back on. Right now, momentum is shifting on EUR and it is trying to move back to an upward trend. If the JPY gets stronger, then there is no carry trade and someone is calling the BoJ’s bluff to weaken the currency. Disclosure: I am short both EUR and JPY. I may not stay in the EUR trade – but the JPY risk /reward is enough that I will go through a few swings to see where it goes.

As I type, EUR has confirmed that it is headed for 1.345 (a TD price exhaustion level). This is not a given, just a higher probability.

Again, sorry for the lack of charts – and this will be better tomorrow.

Symbols: Late Night Goodies

Here are two late night goodie for you guys:

CF looks pretty shot to hell to me – long position and I’ll set a stop below those two trend lines.

CHK is about to run off it seems – do not chase it. Only grab it if it drops below 23 tomorrow or on Wednesday. If it does set a step roughly where I am pointing here.

The story is on the chart – FSLR looks like it’s ready to get its ass whopped again. Short with a tight stop as it doesn’t look very clean on my momo indicators.

Cheers,

Mole




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