Living Inside a Broken Clock: Friday, March 5, 2010

by gmak

China is quite concerned about importing inflation. Those commodity prices are a bitch – especially when your Ag co-ops are stockpiling copper in storage facilities usually reserved for grains and soy.  China is worried about “latent risk” in their banks and intends to crackdown on property. This is really the irony fist in the velvet glove. China itself has been stockpiling commodities for years now. Their loose money policies have led to the property bubble, empty cities and shopping malls, and likely put the risk on the banks’ B/Sheets. Somehow, in all of this, they intend to continue their expansionary monetary policy.

Russia may scrap the Ruble and create a ‘zakistan’ common currency. If you follow the Austrian economic school of though at all, this Plan B should be no surprise – as it is one of the solutions after the infamous “Crack up Boom”.  (First you boom, then you crack up – the currency gets destroyed – see Brazil as an example).

The Greece bond sale went well with a lot being taken by Europeans. Meanwhile Merkel is saying today’s talks have nothing to do with aid. Other EURO-officials are saying that there would be aid. German mfg orders jump well above expectations. It’s the golden rule, I guess. She who has the gold, rules.

Welcome to the broken clock.

EQUITY

My opinion is that the Gartley pattern is dead, as posted last night. The “C” level did not get low enough.  Meanwhile, SPX is running into that dashed yellow line I drew to represent the beginning of a possible range for the “D” point in a Gartley pattern. Stranger and stranger – but it is no doubt just a coincidence. I will note that this area is around the 76% FIB  from the 1150 high and the 1044.50 low lie (X and A in  the imagined Gartley pattern).  It is alsow the 50% FIB (1121) from the all time high (1550+ and the 666 low).

There are always two alternatives: After all, the market can only go up or down. If the current moves are consolidation on that 50% long term pivot (or under the 76% Gartely pivot), that the next level is likely 1150 – no surprise there for fearful bears – and a double top possibility).

If this is SPX running out of steam, then the retrace could be to 1110 (the Gartley 62% FIB), 1097.50 (the Gartley 50% FIB), and our old friend around 1086 – which has been support, and is close to the 38% Gartley FIB.

Whether it is consoidation or retrace, may be identified from the volume. It is gradually declining, even as SPX moves more or less sideways. The direction of the next move will depend on whether the volume increases, and if it does, if the volume increase wants to hit the bid or ask. TD pressure suggests that a move down is more probable – but there is still room for the overbought condition to increase – it has touched 100 (the highest) and backed off. However, there is no “Low risk SELL” signal yet, and (as we all know), overbought can continue. Noteworthy is that SPX is having a hard time moving up with this overbought condition. This reinforces a higher probability of the next material move being down.

Asia was srongly green. Europe is green.  The DAX gapped up. Quelle surprise! and has been trending up at about the same angle as since Tuesday. It is having a hard time getting past the highs of Wednesday – at around 5830 or so. There is still that juicy gap open from 5600 to 5650 – but that is a long ways away.  Breadth is strong with only consumer staples and utilities in the red – looks like the risk trade is on. The green sectors are 80% – 100% green members.

ES has been marching up on a consistent basis since the lock-up. The 9 pMA and the 34 pMA are in a bullish cross, but ES has run into TD resistance levels and seems to be trying to work through them at the present time. Pivots:

• R2: 1129025 = Possible. Especially given the news heavy day. it may not matter, but there is always a market response of some kind or another depending on what short-term bets have been put in place.
• R1: 1126 = This is currently the floor as ES tries to wear down the ask volumes.
• Neutral: 1119 = This was resistance and then support yesterday.
• S1: 1116.50 = This was a strong support level for most of this week. I don’t imagine that this would have changed – and any “sell the news” fall would likely land here at it’s worst, IMO.
• S2: 1110.50 = Looks like a resistance level from the 3rd week of February. This would be more support, based on that. It seems to be an important point to someone’s money, anyhow.

FX

I’m indirectly playing a weaker SPX / ES through a DXY short. This is more based on the weekend and the amount of EUR shorts.  I’m more interested in how much late money there is in EUR short, because the early big money is likely protected by calls, other futures, and so forth. It is not likely that they would panic into any push up for EUR.

Eur 3 min is running in a channel, but having a hard time getting off of the bottom at the present time. If the channel breaches down, there is TD support at 1.3574.  Whether it holds or not depends on where the stops are located (stop running is a big phenomenon in short term FX trading). Stop running leads to a big candle in one direction – and often a slower retrace back down to the old level unless money piles in in the stop running direction.

If the market moves against me, I’m still undecided if I will hedge my DXY with a short EUR or a long ES position, or get out completely.

NEWS

German mfg order up much more than expected.  Even though Merkel has rebuffed Greece, other EU officials are said to be considering aid plans. I think that this schism is more of a risk to Euroland than is Greece itself. Looks like the snow in February (who coud have seen that coming?) may have affected unemployment as it created shutdowns. Watch out for that nasty rain in April and May.

Ichimoku technical analysis (not mine) says that te USD may read  a 15 year low of 84.83 against the Yen. In the face of announced Japanese printing press start up?  The key level is 87.50 and it needs to be breached decisively for the fall to continue.

DATA

8:30

Non-farm payrolls (NFP); unemployment rate, change in mfg payrolls, avg hourly earning MoM and YoY – critical data for credit contraction / inflation war of words; Weekly hours worked.

15:00 EST Consumer credit, expected: -4.5bb  prior of -1.7 bb – looks like a contraction to me.

Disqus seems to be having some problems, so a more colourful comment will follow if the internet permits.