Fear Takes a Holiday

by gmak.

Greek bond spreads are widening. It takes more than the Mayan Calendar “end of days” to distract the bond vigilantes once they have the scent (did anyone ever think that maybe the sculptor of the calendar ran out of stone, or got tired, or got dead without someone to carry on the carving?). Just to show that the concept of the bottomless public trough is universal, Brussels (the home of the EU .gov) has declared that vacation is now a basic human right and that those of lesser means should be subsidized from the public purse so that they too can enjoy life. (I think that this is one more bribe for those who might be storming the figurative Bastille in a year or two – Europeans are much more aggressive about tossing cobblestones at the heads of their elites).

While we’re examining stupidity at the top, I have a simple question. If all these CEOs of IBs were unaware what was going on, had no idea of the impact of decisions of those below them, and essentially were misled by poor advice (including Clinton) – why are they being paid so much when they are clearly disconnected from the business, wouldn’t know a shareholder if they were kissing their ass, and (if their self-serving bluster is to be believed) their influence and control of the business makes it seem that they might as well be a Sims character.

You can’t have it both ways. Either you’re smart and in charge and worth the salary – but accountable for what transpired, OR, you’re stupid and lobotomized and a figure head – and you should be paid a civil servant’s wages because you are no better than a titular functionary.

And all I have to say on GS being akin to GOD with their profits is that before the crisis and loading the administration’s bench with their own players, the GS prop desk lost money hand over fist. I can beat anyone at their own game every time, if you will but telegraph the moves before they happen. And, I will gladly pay you next Tuesday for a hamburger today.

Further down the rabbit hole, FED prepared testimony contradicts the whistle-blower. CRE prices fall. Citi is over 20% of market volume. The YEN is pummelled as everyone and their dog re-create the carry trade. Mondays account for all of the gains on the SPX so far this year. GS stock price was up, but the CDS spreads widened. (Who would you rather follow – the equity boyz and gurlz who see everything as “unexpected”, or the bond vigilantes who can be wiped out by a 1/32 mistake?). JPMorgan threatens Germany over regulation and demands more access to politicians. Same story, different day.

Welcome to the broken clock.

OverNight

Asia was green everywhere – although within the 1% range.  Europe is green everywhere. Breadth is mixed, but seems a little low in some of the bigger markets. The DAX gapped up, and didn’t quite manage to close that gap before ramping up to the 6250 resistance level (used to be support). Every secto is green 100%. Consumer discretionary is up 5% – so there must have been some good news this AM. Ah yes, the ZEW economic sentiment (German and European) were both up and well beyond expectations. The European Curernt Account was in deficit by E$3.9 billion, but well ahead of expectations of almost E$6 billion. German and UK CPI are higher than expected – along with the postiive sentiment, this would be bullish for assets due to the implications for growth in money supply and economic activity.

And of course, ESM0 took off at 5AM when the ZEW was announced. The entire night was spent in a range from around 1194ish to 1197ish. Post-ZEW, ES ran up in a steady 45 degree channel to test the pivot at 1201.25 and was rejected.

ES Pivots:

• R2: 1207.25 = Certainly a target, given the positive sentiment. Later today the USA ABC Consumer Confidence number comes out for the period ending April 18. The prior was -47 (I don’t now how this is scaled or interpreted). There is no other data to influence sentiment.
• R1: 1201.25 = Just finished rejecting ES.
• Neutral: 1190.58. If today becomes range bound, I would suggest that this would be the bottom of the range – although ES never went below 1194 after the lockup  yesterday. A better range, give some technical support, would be between 1195.50 and 1201.25. 1190.50 was technical support – and would be the next line of defense if there is “slippage” in the SPX.
• S1: 1184.50 = Around where the ramp up started yesterday. Certainly a test point if the fear trade comes back. In the “old days” the fear trade would last months, not hours.
• S2: 1174 = Just a bit of bearish wishful thinking for today, IMO. This was support on April 8th, and resistance for the last week of March. It is also a key area for some TD TA and indicates the threshold that would make the difference between a correction and a sell-off.

Subscribers can login to check out today’s analysis.

This is the SPX Daily Chart

that I would have liked to show with my post yesterday. I’ve marked the 3 possibilities (among hundreds) that I was writing about. You can see how the “Since Oct 21” trend line has supported SPX for 2 days in a row.  The dotted pale yellow line just below the most recent bar is the 21-day SMA, and it will be acting as support (it is also the Bollinger average that I use). The 55-day SMA is the yellow line that turns into a dotted line to show where it might go from here.

Down below, you can see the TD Pressure that has signalled a low risk SELL by crossing back below the red signal line – but is threatening to turn back up.

I said yesterday that I could see an attempt at the 62% FIB which is so near. That may be, but the probabilities are saying that we are in for a day where the CLOSE < OPEN. For this to happen, SPX needs to break below the trend line, and the 21-day SMA.

There are  13 scenarios (since 1982) where the SPX daily bar is a ‘52’ followed by ‘35’.  5 of them have the next day CLOSE < OPEN (51, 52, 54, 42, 32). 6 of them have the CLOSE > OPEN (13, 14, 24, 25);  2 of them have CLOSE = OPEN (22, 44).

All slopes (positive and negative SPX slopes) with bar shape of 35 has the next day at:  51% CLOSE < OPEN with (51, 52, 53, 41) being the most common next bar.  39% CLOSE > OPEN with (14, 15, 25) being the most common next bar.

For positive slope SPX: a bar shape of 35 has the next day at:  55% CLOSE < OPEN  with 51 being the most common next bar, and 36% CLOSE > OPEN with 15 being the most common bar.

Conclusion: Tuesday wants to be a down day, all things being equal – meaning that CLOSE < OPEN. What stands against this is how SPX closed above the 10-day SMA, and above the neutral pivot from yesterday. You can see the afternoon action HERE. What works in favour of CLOSE < OPEN (apart from the daily chart’s TD Pressure with a low risk SELL still valid) is how SPX completed the SELL countdown (purple number 13 and the dashed purple line). At the same time, the 5 minute TD Pressure was about to signal a low risk SELL of its own.

Here is the daily VIX. What is important is that it didn’t close outside the upper Bollinger. Notice that the Bollinger banks (in yellow) are starting to widen. As mentioned before, volatility has reversion to the mean. If the bands are too narrow – they will widen. If they are too wide, they will narrow. As far as I am concerned, the VIX signal from April 12 is a valid one – but the bands need to widen to give room for SPX to decline in price. That suggests a bit of up and down each day for the SPX – i.e. increased volatility to widen the bands without signalling a reversal.

Mind you, if the VIX closes outside the upper Bollinger, and then comes back inside the next day, I would expect SPX to go kiss the 62% FIB.

I haven’t written about the EUR for a bit. Here is the Daily chart with an updated channel and FIB lines. As you can see, the EUR is still in a downtrend – but has put in a couple of higher lows – even though the EUR has been stopped by the upper edge of the channel and has not been able to move on to a higher high. This does suggest a bearish wedge, no?

You can see how the FIBs (horizontal) from the last local high and low, and the FIBs within the channel, interact to create support and resistance levels for the EUR. FX seems to be so much more “clean” from a TA perspective than Equities.

If EUR breaches the 62% FIB (horizontal) at 1.3497  = 1.35 by any other name – It looks like it will go on to re-test the channel top, shoving into the nose of the wedge. If not, then the purple trend line and the 50% channel FIB look like support areas that need to be tested again to the downside.

TD wave seems to think that EUR has begun an up-count (the count is in blue), given that “C” was put in at the end of March, and “1” was put in around April 10. We all know what comes after ‘2’ – it’s the strong move up with a ‘3’ wave.  I’m curious as to what will eventually win: the bearish wedge (yay!) or the bullish wave count (boo, hisss). With CDS spreads widening on other European countries, I would be loathe to bet on an uptrend over the medium term.

Good Luck in the mix, today.

My Best Regards.