Living Inside a Broken Clock: Friday, Jan. 15, 2010

by gmak

Who will be the last bear left standing?

The US administration and FED are engaged in a desperate attempt to kick the can down the road – to delay the highly probable reckoning for the financial system until real economic growth is the tide that lifts all boats. To do this they are tapping into the potential of future tax earnings – your money that you are supposed to earn over your lifetime, and maybe your children’s and their children’s earnings. Every time they kick the can down the road, the side effect is to [push asset prices up.

There are a million reasons for the market to collapse, and only one for it to go up. But it’s a big one. The FED is still pushing liquidity into the financial system. That liquidity has no outlet into the normal economic system and so it is sloshing around in markets around the world. It can disappear in a flash, but only if the financial system actually recognizes their losses which would see their capital shrink. including the FED.

The FED has to take their hand out of the till in March. Only the people’s representative can keep the game going, unless they hear a mighty loud roar as a nation rises from their couches.

And many are going short in the face of this? Welcome to the broken clock.

EQUITY

SPX daily is lifting off again and creating a steeper trend line. At some point, it will go parabolic – but only if the retail trade somehow comes in to take the financial system’s place in the markets – and then crash.  The one saving grace, if TA is still working, is that the “Point of NO return for the bears” has not yet gone from being dashed to being a solid line. It says that there is still a probability that SPX will reverse itself before going parabolic.

I am reminded of the martial arts where each move is used to take the opponent further off their center – by just a bit – until the decisive blow can be made. I believe that the financial system through the markets is moving further and further off center with each kick of the can. At some point, it will not be able to return to equilibrium in time.

The SPX weekly chart shows that the trend is still intact. Look at all those points touched by the dashed yellow line! Further, the horizontal purple line just above the 50% FIB at the RHS of the chart says that the trend is still valid, even as volumes continue to diminish. The green numbers are TD sequential setup counts. The red numbers are the countdown to (in this case) buyer exhaustion. The red numbers go up to 13 and don’t have to be consecutive. This says around 4 more weeks until a fundamental trend shift might happen. Add a few weeks for momentum and you’re near the end of March when the MBS buy program ends.

The world is mixed but just look at the DAX. This is a pre-cursor for the SPX open. However, it is not an indication of the full day – being OPEX and all. I won’t trade opex because the many times that I have been burnt big, I’ve looked down to see the OPEX logs in the fire.

This ES chart spans 2 days on a 5 minute basis to show where the support clearly lies – so you don’t get fooled.  I’ve removed the TD propulsion (picket fences) to make it more readable. ES pivots:

• R2: 1152.25 = Would be a new high. Not likely on OPEX – especially given that all the money at risk around SPX = 1150 until the NY open.
• R1: 1148.75 = Ditto, This would put SPX above 1150
• Neutral: 1143.50 = Acted as a roof for most of the night – and threw back a pump attempt at 4 AM EST
• S1: 1140 = Didn’t even slow ES down in it’s short-term TD wave 3 of 5 down formation. Seems to be a roof now.
• S2: 1134.75 = Clear support area from prior days on the 5 min chart. Could be today as well. OPEX muddies the waters somewhat. 

FX

Here is he USD showing some strength.

NEWS

DATA

Lots of data today. It should be good for innumerable blogosphere inflationista vs deflationista battles. Very entertaining. It still boils down to who you think will win: The sorcerer’s apprentice and broom(s) or the hole in the financial dike.

That’s it for me. I heard the canal opened for skating and I have some shiny new skates that I still haven’t “strapped” on. Protect your money. Swim with the current – you will last longer until any possible turn.

Cheers.