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.