Living Inside a Broken Clock – Monday, Nov. 30, 2009.

Japan has decided to make public that they MIGHT try Quantitative Easing again. China is hitting back verbally at the world which wants China to stop their “beggar thy neighbour” policy (weak currency and economic growth from resulting exports). Creditors everywhere assume that Abu Dhabi will underpin Dubai’s financial debt (although Dubai gov’t will NOT back the Dubai World debt).  US Treasuries are still seen as a safe haven, and the USD continues to be kicked while it’s down. Is this a fair assessment of the situation?

I see trade wars brewing, a race to the hyperinflationary finish line, a weaker USD – and yet GOLD falls as well. Welcome to the Broken Clock.

There is so much uncertainty and SPX does not really have a good entry point, IMHO. With the USD down so much since the peak on Friday, ES is effectively flat. The usual correlations do not seem to apply at the present time. Even though SPX put a pin (above) through an area of support roughly estimated by the dashed green line, that support is still holding on an inter-day basis.  I would expect SPX to re-test ULTRAVIOLET (the violet line that runs through the top of the last bar), yet again.

If I wanted to do this re-test short-term play, I would put my stop below the low of Friday – 1083.74 – which gives about  6 points of risk (or more). The upside is to the ULTRAVIOLET trend line – 1105.47  – which gives about 17 points of upside. This sounds like a good risk /reward ratio, but I don’t see a lot of supporting TA. TD Pressure is in transition and could head up or down. I think it all comes down to whether or not you believe that the USD /SPX correlation will reassert itself.

Going short here for a quick scalp is feasible – if one ignores the trend TA.  ES is running into resistance at the neutral pivot at 1089.25, and the next support is at the pivot at 1067.25; The recent high resistance is around 1098 – 1100. TD has a resistance level at about 1092.25 (it is the dashed green line at the right of the chart, just above the dotted orange line) and above this would be a good level for a stop.  That gives about 6 points of risk for almost 20 points of possible gain. However, the TA does not provide any clues as to direction here.

Typically, the ES and SPX are pulled by the USD and one would expect SPX and ES to head up today – but this isn’t showing up on the tape.

EQUITY

NorthAM was red on Friday on very low volume and a short day. Asia was green overnight, but Europe opened red.

The DAX isn’t looking very good with almost all sectors down.

DAX has been weak since the open – but looking at 5 days, it still needs to breach short term support around 5600.  Meanwhile, it appears that there is resistance at 5700ish. Going into the NY open, I favour shorting ES over going long due to the behaviour of the DAX, and the risk /reward mentioned above for ES. However, I woud keep my tight stop at the TD risk level mentioned (above 1092.25).

FX

USD is down. It seems that sales were lined up against EUR for squaring of month end acount. Therefore, the weakness may not last.  CAD, EUR, GBP, and JPY are all moderately stronger – but weaker than earlier.  DXY put in a higher high on Friday (see the wide white horizontal lines for “high” levels).  You’lnotice that DXY is clawing it’s way above the pivot at 74.642 but that the dashed green line at 75.036 is the critical resistance level from a TD point of view. If DXY can get there, then we would have a higher low following the higher high – and hope would still burn eternal.

No sense in listing the pivots – you can see them on the chart and in the legend. IF DXY can get above 75.463 (which is a pivot and resistance level of IMPORT), then 75.88 is the next high that needs to be cleared – thankfully below the next resistance pivot up at 75.929.

NEWS

A picture is worth a thousand words:

DATA

And here:

http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

SUMMARY

The short on ES right now has the better risk /reward with a stop above 1092.25 (how far above depending on your risk appetite and general volatility of the future right now). Target is  1067.25 which is the S1 pivot.

Cheers.