Another Day, Another FRN.

by gmak

Private debt has shrunk $36 trillion to $34 trillion over the last year. My understanding is that this is the first time it has happened (at least since 1952) EVER. US GDP is around $14 trillion (if the numbers can be believed). Within this, US consumer credit has shrunk for 11 months in a row. Hardly the stuff of a consumer-led recovery. It has the faint odour of deflation about it, Holmes. Now on to other matters.

Everyday, I hear people say that the market will ramp and stick. “Watch out for the 3:30 push”. “Here comes the PPT”. The TA shows continued upward momentum and yet the gaggle of traders ( A murder of shorts?) persists in trying to pick the market top. It seems that most would rather be right than successful. Accounts and P/Ls are whittled down to where it is impossible to take a calculated risk anymore.

The market is not rational. It cannot be predicted. There are so many factors at play that a PhD in Physics describing the interactions of grains of sand being dropped one by one into a pile is barely able to describe the relationships in the financial system (though they do try).

TA is a beautiful elegant mathematical system that tries to model the messy, sloppy, unfathomable reality of the markets. Most traders are using some version of it, crunching the same numbers, looking for nuances in the same signal lines and moving averages, staring hollow-eyed at the same Fibonacci numbers and lines, drawing the same trend lines with trembling hands. Where is the much-vaunted “Edge” in that?  At any point in time there are probably 30 – 50 million traders of varying skill around the world looking at exactly the same data, using the same software, and interpreting the results in pretty much the same way.

The simple truth is that in any time period, the market will go both up and down. Money can be made both ways. It doesn’t matter what is supposed to happen. It only matters that the market goes both up and down and that money can be made either way. (I know, I said the same thing twice. It’s that important.).

Einstein’s definition of insanity is doing the same thing over and over and expecting different results. Welcome to the broken clock.

EQUITY

The chart shows that, yesterday, SPX put a pin up to the trend line “Since Oct 21″, knocked loudly, and was NOT let in. The question now becomes, how many times will SPX knock on that trend line before either getting through, or being rebuffed.  We all know that it will try to get above again, and that the invading barbarians have to take a few steps back before running the battering ram at the door again. (AM analogy for SPX should usually pull back a bit before trying to get above. It did pull back a bit in the PM yesterday).

In spite of volume, SPX has a momentum of sorts as indicated by the big pink box down in the TD Pressure chart at the bottom of th Daily Chart. The solid green line that is overlayed on the FIB line (100%) that begins at the “X”, is a TD indicator. It is usually a dashed line, and turns solid when it becomes support instead of resistance. This suggests to me that SPX will go for at least 4 more days where the close is higher than the close 2 bars previously (which is a TD methodology called the SELL Countdown). After that, a reversal is expected within 12 bars (days in this case). If not, then the countdown was a false signal.

TD Pressure is overbought and stretched (the pink box). This usually means that the overbought condition will continue. A low risk SELL will be indicated when the TD Pressure falls back below the red signal line.

http://www.uploadgeek.com/share-B185_4BA1426E.html

So far, there is nothing new here. It looks like more upward momentum with only the soupçon of a promise that a retrace of some kind will come.

If you want an edge, here is something that was posted on Sunday night. You were told that based on data going back to 1982 – when the modern era of FED pumping began – that there was a very high probability that SPX would stay above the 55DMA for quite a while. So why was every little slip down greeted as the seed of P3?

 http://evilspeculator.com/?p=14880 . Here are the probabilities from that post: ” the odds are 4% / 40% =  10% that SPX will go below the 55DMA in the next week. The odds are  90% that SPX will stay above the 55DMA for longer. Please note that this does not necessarily mean the SPX will go up. It could go sideways and the 55DMA could come up to meet it, crossing from below.”

I will tell you now that when there are two days in a row such as we’ve had, the highest probability is for another one. The next highest is for the inverse. But,  most of the identical occurences of the same bars (a  15 followed by a 14) that we have had over the last 28 years have led to a third day where the close is near the HOD – no matter where the open is in relation to the LOD.

ES Overnight sold off along with the EUR and bottomed at 1157ish. THere wasn’t any typical technical reason for the bottom.  There were 40 5min bars of red with only 4 white bars. Was the PPT overnight stooge on a coffee break? (take that conspiracy theorists. lol).  To feed the fire, Volume was at its highest right when the reversal occured off the bottom. heh. I don’t know why the charts I save at work aren’t the same resolution as the ones from home – but there it is.

http://www.uploadgeek.com/share-3AFF_4BA1FC20.html

The point is that ES is back at resistance at 1160. If you look at the chart, you can see the tidy methodical TD numbers in green for the BUY setup. The TD pressure shows how each release aove the green line was met by additional selling. Someone or something was trying to initiate or close out a position. Notice how the jump in volumes at the bottom did NOTHING for the price – 4 times the volume in each 5 minute time frame, and barely a move up.

The green dashed lines on the chart are TDST Up ines. They mark the highest point of the most recent BUY setup (the green numbers). While it is dashed, it is porous and can be moved across freely in either direction. IF it becomes solid, it becomes support.

IF ES is falling, reverses, and clears the line – it suggests that the trend has really reversed, as opposed to a small retrace where the downward direction would resume. The blue picket fence is additional resistance on top of the pivot. the yellow picket fence has become a short term support.

Pivots:

•  R2: 1171.50 = A lot of territory between here and there for the day before OPEX. I think that this level is safe for the time being.
• R1: 1166.25 = The new ‘black’.  This is where the HOD was yesterday, and certainly it has a target on its back.  The march there off of the 1138 bottom, after the ramp at the close on Monday, was pretty much straight up. I think that ES needs to consolidate a bit before attempting another run. (Time for a sandwhich PPT-Boy).
• Neutral: 1160 = the current roof.  We’re in uncharted waters, so there is no prior indication how this level will behave. It was strong resistance – and now, after being penetrated brutally?
• S1: 1155 = Another unknown as a support level.
• S2: 1149 = This is more familiar. A converted reistance area is usually the toughest support.

FX

I’m not going to say much here. Just thanks to the market spirits for being so generous with cash for my account. The ride has been fun, if a little wild.

The EUR was under some selling pressure overnight, and after seeing 2 – 4 pip candles in the earlier session, the 10 – 20 pip ones looked monstrous.  There seems to be decent bids (support) around 1.3650, and selling up around 1.37. Still, a 50 pip range makes for some nice quick trades. If I may paraphrase Trader1: EUR is a dirty girl. Don’t try to make a mistress your wife. (Please modify the genders as you feel is appropriate and politically correct. heh.)

NEWS

The Greece bailout is the master of “now you see it. now you don’t”, and the latest sentiment is “you don’t” – so the EUR is under some selling pressure. If the correlation holds, the same should be true for SPX. I would think that buyers would be saving their ammo for the games tomorrow – so it’s probable.

It seems that ANZ banking group in the land of Oz has noticed hat the demand for credit has been growing in recent weeks. While too early for a trend, it is the first time that this has happened in a year. Demand is being driven by corporates who are apparently encouraged by the strengthening domestic economy. This is NOT to be discounted. BUT, it could be a result of China money flowing into the region buying real assets with FRNs.

Bernanke doesn’t want the FED to become a ‘too-big-to-fail’ regulator. He doesn’t want that responsibility. Yes, it would be terrible to actually have to work for a living protecting people against vampire squids. Bernanke states that the FED needs to have insights into the entire banking system. Well, they certainly need something having missed completely the last 30 crises.

India is apparently bidding over China for Potash imports to ensure supply. Got POT anyone? Brazil keeps their interest rates low (8.75% – how’s that for a kick in the pills?), but signals an increase in April. Why are they the only country, besides Zimbabwe, showing inflation? Don’t they buy from China like everybody else?

Mark Gilbert of Bloomberg reports that Chuck Norris jokes are being recycled with more recent themes. Some samples include:

Chuck Norris feeds his vampire squid $100 bills that he got from Geithner. He trades Repo 105s with the FED and only pays 104 for them, and his auditors have signed off on them as true sales. Chuck Norris plays golf with Tiger most weekends and lets his girfriend caddy for the golfer.He totes his own bag and wins by two holes. Moody’s has pledged to maintain the USA AAA rating as long as Chuck Norris resides there.

DATA

CPI and all it’s subsets at 8:30AM EDT. Jobless claims. Current account balance. At 10AM it’s the Philly Fed and Leading Indicators (If the stock market is the main indicator, you know that this will be bullish. forewarned….).

Well, one of my EUR traps has sprung and I’m off to see what I caught.  I hope that it doesn’t bite.

Cheers.

This entry was posted on Thursday, March 18th, 2010 at 7:26 am and is filed under Market Outlook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.