Living Inside a Broken Clock: Friday, Feb. 12, 2010

Fear is trump today. China raised reserve requirements by 0.5% but forgot to phone GS first. The market didn’t like that and ran to the USD. JpYEUR – a favorite measure of the carry trade – is down over 70 bps. The second icy finger was when the European countries GDP, Industrial Production, wages, were below expectations AND NEGATIVE.

For the goldfoil crowd, CME is increasing margin on gold, silver and palladium futures. I think everyone is getting nervous about the debt levels – even the Canadian banks are concerned for the average citizen (wow, is that a cynical statement or what?).

The US individual states and the EURO-furor is still percolating. Off the screen doesn’t mean off the road – and that can is getting awfully heavy and the kicks aren’t sending it as far. Welcome to the broken clock.

EQUITY

Yesterday, SPX poked its head above the channel that has been running since the middle of January (down). Unless the market is in runaway mode, one would expect it to be an overthrow and for SPX to come back into the fold. At the same time, the trend “Since Oct 2nd”  has been acting as a floor on the daily SPX. So what we have is a rising wedge – not a flat-bottomed triangle. China and Europe are two icy fingers of the fist of fear (think proctologist without gloves – a subsidiary of doctors without borders).  Until the market adjusts to this news, the risk is more down than up. Remember, though, that there will be selling in precious metals based on the new margin requirements. Where that money might go (even back into PM) is anybody’s guess at this time.

Here are the Gartley targets. If this pattern is in effect, todays drop will be muted. Daily SPX (and ES) would definitely have to break out of their short term channels to carry this off. It would be a face-ripper for both bears and bulls. At the current rate of ascension, it would take until March 8th or thereabout, for SPX to reach the “B” point. That is around where Ichimoku suggests that the trend changes from up to down. I think that this is data mining. The “B” point will be reached IF it’s reached and no sooner. (Remember all the admonishments about bias – predicting the future is a bias).

Here are the numbers I get for SPX:

X = 1150.45 (Jan 19)
A = 1044.50 (Feb 5)
B = 1109.98 (projected)
C = 1058.50 – 1069.50 (projected range)
D = 1124 – 1135 (projected range) Go short here if the pattern holds

Asia and Europe are mixed – WIth Hong Kong and SKorea in red (before the China announcement it looks like Asia was mainly green), and the bigger Euro-economies in green – it’s a mixed bag. I would suggest that the markets are reflecting the move away from riskier assets and are looking for “save havens”.  DAX is putting in a base – or a bearish flag – on the day. It looks like 5500 is support for now, but 5550 seems to be the roof -and it is a lower lower high off of the last two days. This is the 3rd day in a row that Dax has opened up – but lower than the HOD of the day before, and then sold off.  If the pattern holds, DAX should try to test 5450 which is where all the support has been since Feb 4th. If today is the search for less-risky assets then it may just meander sideways for the rest of the session.

Now the question is: Is SPX a less-risky asset? ES says no. ES had maintained its high level off of yesterday’s close, trading in a thin range until China. Boom! It looks like the 38% FIB in the channel that the 5 min ES has been running in for a while is support for now. It would not surprise me to see ES make a comeback and help SPX try to stay above its daily channel. Pivots:

• R2: 1091 = Way up there based on the 5 min channel. Not likely, today.  ES was last here at the start of FEB – it was support before the most recent Waterfall. Notice that ES has been in an upward channel off of the bottom from Feb 5th.
• R1: 1084 = This is around the leel of the 138% FIB off of the channel. By noon – it will be at the 123% FIB off of the channel – so definitely do-able.
• Neutral:  1070.75 = was mid-day resistance from yesterday. Looks like it might be short-term resistance in the AM. BUT the 34 pMA is having more of an effect on ES at the present time. Note that the 9 /34 pMAs are in a bearish cross, but that this will end in about 5 – 10 minutes (unless China speaks again. heh.)
• S1: 1063.50 =  Still within the channel. ES has positive momentum (IMO) and I doubt that we will see this – barring some unexpected development). TD has a support level (short term) at 1064.75, and the TD counts suggest a fundamental shift in direction (from down to up on the 5 min chart). MACD seems to be in agrement – even though volume is declining to usual levels for this time.
• S2: 1050 = skewers the dip at the close on Friday Feb 5th. This is below the channel, and getting here would suggest a bounce and a retest of the lower boundary of the channel.

FX

USD is stronger. CAD, JPY, EUR, and GBP are all weaker. JPYEUR is down. That pretty much says it all. Fear rules for now until the nerves numb and then it’s game on again.

EUR seems to have put in a bottom for now, and is creeping up in the all green, few red bars-style usually reserved for the afternoon (NY session).  DXY’s pivots are:

• R2: 80.865 = just above DXY right now. Definitely do-able.
• R1: 80.429 = Hasn’t been a player yet. DXY pushed right through after China and Europe news (which apparently doesn’t matter by the way. heh. surprise!)
• Neutral: 80.069 = was the roof on DXY until the news broke. It would likely be support on any retrace and sell off (which may just happen as traders realize that the sky is NOT falling and that the liquidity trade is still on for 1.5 months)
• S1: 79.633 = around where all the low points were on each wave over the last week.
• S2: 79.273 = Definitely a trend changer if reached.  Doesn’t seem to be an eyeball level of support or resistance over the last couple of weks.

NEWS

China. Europe.  EU leaders are pulling their “bazooka” out of their collective pockets to defend Greece verbally. They will need to take some sort of action – or present an actual plan – in the next week or so. Look for this to help markets get a bid again.

DATA

8:30 AM = retail sales. Only matters because Cramer and CNBS have been pumping retail. Have to get those ad dollars in somehow.

10AM =  U of Mich. confidence. Business Inventories.

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