Living in a Broken Clock – Friday, Dec. 11, 2009.

by gmak

The US FED was slapped gently at yesterday’s 30yr auction. The yield curve is now the steepest it has been in several decades. This creates a tough decision point between low rates but frequent need to re-finance, and predictability of payments over the longer term but at higher rates. This is not a fun spot to be when you find yourself needing a trillion or so of cash every year.  The banks should be turning cartwheels over the steep yield curve – except they’re not lending. And when they want to – there are no borrowers. Welcome to the broken clock.

EQUITY

The daily ES chart shows that ES has not broken the trend line that started in March 2009. I’ve drawn a second one in white that goes off of the underthrow in November – just to adjust to that reality. More important is that you can see the blue “5” and the yellow “0” at the right hand side of the chart.  There is also a violet dashed line which is TD’s Risk line in the sand at ES = 1116. If ES gets above that decisively – then wave 5 is still on. The TD Risk line is usually pretty stubborn resistance and any overthrow is usually beaten back. If it “falls”, then the line turns solid – just like you can see at points to the left on the chart.

To me, it looks like a bullish wedge. Although there is resistance above, it is being steadily worn down. Each drop from that resistance is shorter and shorter, in general. At some point, there will be enough momentum to get over 1116 – or so the theory goes In reality, anything can happen. This is why risk management and stops are your best friend.

Without the 24 hours of ES, SPX shows that 1086 is where the buyers come in. The line has been tested 4 times – which usually means that it won’t be seen again for a long time. However, that is just a market myth and the market will do what it will.

Conditions are not good for short trades since SPX seems to be equal distance from both support and resistance. A coin toss with stops based on intra-day pivots would be the way to go here.

The world is green, except for emerging Asia (worry about contagion from Dubai and Greece, no doubt).  The news shows that China’s industrial engine is forging ahead.  It’s a second derivative story as exports fell – but the least amount in the last 13 months.  If production is growing and exports are still falling, you know that there are more empty cities springing up all over the place. Yet, this is touted as an excuse to push commodities higher. Money supply expanded by a record amount, and new loans exceeded forecasts. China is a credit bubble waiting to burst. Kick the can.

The DAX gapped up – ramp and camp – so expect the same for SPX initially.  5800 looks to be the roof overhead – more or less. The banks aren’t participating which makes this rally seem tenuous at best.

ES continues to step itself up. The pivot at 1108 is holding form now.  Remember 1116 as the TD risk level.  Pivots:

• R2: 1114 = below the TD risk level, but around the ES high.
• R1: 1108 = ES got past it but didn’t hold
• Neutral: 1100.25 = Site of support and resistance both, yesterday and previously. An important barrier to both bulls and bears. TD notes that 1101.75 is an important level. If ES goes below this early in a BUY setup (faling prices) then the trend is likely to continue. If not, a bounce is likely.  This is a good place to set up a long scalp – if we ever get there – with a stop below the pivot.
• S1: 1094.25 = This is just above the support from yesterday that launched the latest mini-rally of 14 points.
• S2: 1086.50 = Suport from Wednesday that permitted the consolidation that led to the latest mini-rally.

FX

USD is weaker today (yoyo). The chart shows that it is still behaving in the descending right wedge.  Each bounce off of support is shorter and shorter – leading one to expect that sooner or later that support will be so full of holes that it will rip and down will come DXY.  I welcome other views, please!

CAD, EUR, and GBP are stronger. JPY is weaker. The risk trade is back on – and GOLD is starting to move back up off of its consolidation (as the late-buyers have all been shaken out). The EUR has put in a higher high off of a higher low and is consolidating at the pivot at 1.4767.  Looks like this might have legs – although not aggressive. I have price exhaustion at 1.478 and the end of the “C” wave down sequence at 1.4785. (TD waves which are sequential and not nested like EW). This says that a turn is coming.

NEWS

China will save us all with pyramid building and credit bubbles.  Bankers are under fire everywhere for paying themselves with taxpayer money for shuffling more paper than ever before. If ever there was a sign that the IBs add no value to the economy, it was this year.

Gordon Ramsay is levering societies over-compensation of media and spending less time in the kitchen and more time on camera to save his financial skin.

DATA

Lots of price and retail data.  The declining trade deficit says that the ChiMerica circle jerk continues to eat its own tail (Less money is going to Asia to be lent back to the US which means the US buys less stuff etc etc etc).

Stay calm and pick your entry points and direction of market. Know why you are putting the stop where you put it. Know that you are a child of the universe. lol.

Cheers.