Living Inside a Broken Clock: Thursday, April 1, 2010

by gmak, Nothing in here is an April Fool’s Joke .I don’t joke when it comes to making money. Call me old-fashioned. 🙂

The FED, in a rearguard action has released details of the holdings of the Maiden Lane sisters. These funds hold assorted junk from the JPM /Bear Stearns marriage. Explanations are here.

I guess they’re more afraid of an audit than they are concerned about “…compromis[ing] the New York Fed’s ability to maximize value for the taxpayer in the long-run….” , anymore.

http://tinyurl.com/ykkhl4k

You can find the details in the 3 documents at the bottom of this link. I’m sure ZH, MarketTicker and others will dissect them in great detail for us.

None of this matters, except that the degree of toxicity might provide an indication of how fast this part of the FED’s balance sheet might shrink – and drain liquidity from the markets. But it’s a small part when compared to the 1.3 trillion in MBS purchases. WIth Fannie Mae delinquencies doubling YoY to 5.5%, can anyone believe that that garbage is anything but on the Fed’s B/S?

Tick. Tock. Tick. Tock.

EQUITY

SPX Daily Chart.

SPX failed to get through the 123% FIB, yet again. I still think that there are somewhere between 5 and 8 trading days minimum before SPX can get back below the 55DMA (based on probabilities)- which is the yellow line as indicated. SPX is 4.25% above the 55DMA, which is getting up there by  historical standards. In fact it is at this level (% above 55 DMA) or higher about 20% of the time that SPX spends above the 55 DMA.

Asia was solidly green. Europe is the same. The DAX gapped up – again, and is trending sideways just above 6200. This is, of course, a new high on the latest leg (since March 2009). There isn’t much in the news to explain this (is there ever?). German retail sales were lower YoY than expected. UK mfg did rise more than expected. PIMCO is taking shots at the Euro-solution for Greece, and there are hints of a CDS ban in Europe (which will make it really really tough for the PIGS to issue debt).

ES has trended up all night, and only come off a bit since 5AM EDT.  Pivots:

• R2: 1175 = Certainly within the realm of possibility on this shortened trading week- if some big money wanted to game the market. But without buyers around, distribution wouldn’t work so I don’t see any reason for this level to be reached today. Looking for that range trade again, given that the “Since Oct 21” trend line is so powerful a resistance, in combination with the 123% FIB.
• R1: 1170 = Acting as a floor now. ES pushed above, and then got pulled back down like a magnet. There were no stops to run higher up. Without buying (IMO, not likely given the first day of the quarter), this pivot is acting like a gravity well and flattening that pump. ES had a hard time getting to this level on Tuesday, and failed. It would be a new high – on a shortened holiday week? Not likely.
• Neutral: 1166 = This was the floor overnight. ES ran along it, mmore or less, for a coupe of hours. I see a TD support level at 1166.50, and another at 1168 (short term). This is likely where support will come from. Note that ES spent a couple of hours at the 1168 level – and it will likely play the role of price exhaustin on any downward move.
• S1: 1160.75 = This was support on Thursday and Friday of last week. Unless there are stops to run below the neutral pivot, the action and volume suggests that we might not get here. If we do, it would be surprising for ES to fall through. So it looks like the range will be a very narrow one today of about
• S2: 1156.50 = At the lowest point from last week. Getting here would be halfway back down the ramp from March 22nd. ES would probably fall all the way to 1140, in that case.

Yesterday, I wrote this:

“Yesterday’s bar shape was a 33 (1 is the lowest 20th percentile 5 is the highest on the size of the bar). The previous was a 14. This combination has only happened 3 times since 1982 – and there is an equal probability of OPEN > CLOSE, OPEN < CLOSE and OPEN = CLOSE (meaning close to each other).  Based just on yesterday, my opinion is that today will be similar. The probability of OPEN = CLOSE following a 33 is above 11% – which is quite high for this.”

The bar for Mar 31st turned out to be a ’43’ where the CLOSE and OPEN are close to each other on the daily bar.

I’ve noticed some comments on Geronimo. I just want to say that from my perspective, in a choppy low-volume (holiday-shortened) start of quarter-type of market :-), I like to check some of my TA indicators when Geronimo fires, due to the nature of that type of market. So, I will check oscillators, short-term trend lines, and (of course) some DeMark trend-ers to see if the “chop” might go against the trade. Zero provides a nice confirm on directiion. Ordinarily, I don’t do this since the Geronimo trade seems to have decent risk/reward probabilities over time.

After the link to the chart, there is additional analysis and comment for subscribers.

Cheers.

http://screencast.com/t/NDgyMjVkOD

Yesterday’s bar was a 43. Given this, and the fact that the previous bar was a ’33’, there is a higher probability that the CLOSE > OPEN for today. So, based on this, I would look for a run back up to the 123% FIB at 1175 (SPX), or to the trend line at SPX = 1177.40. If I trade ES at all today, I’m going to range trade and look for the quick score. I will be surprised if there is much movement and I will certainly check indicators on Geronimo, and look for a Zero confirm, due to the ‘weirdness’ in these markets due to quarter end AND the holiday weekend. My initial trade that I’m looking at is to go short at ES = 1175ish, for the crawl back down to ES = 1170. If we reach 1165.75, then I will look to go long. Rinse and repeat. I expect the markets to move slowly today, so that gives time to anticipate trades and exit points. If this continues to be the case, I will use mental stops unless I plan to be distracted, in which case I will use wider protective stops.

I’ve written more than I should about FX today, but I think that we all need to exercise another part of our brain – instead of constantly worrying about why the stock market doesn’t reflect macroeconomic reality. I did put on the trade mentioned below, overnight and made my target on the JPY leg. I’ve since put it back on (short). Overall, it was a profitable sleep. Thanks be to the market gods (gotta give Luck its due here boyz and girlz).

EURJPY Daily Chart – image taken last night at 19:11 EDT.

Isnt’ that a pretty H&S with a neckline just below 125.50? No wonder there was such a concerted battle to push up to that level. It broke the neckline, and ran all the stops hiding behind – FX traders do tend to be straightforward when it comes to using TA as entry and exit points.

The 55DMA (yellow line) was used as a launch pad. One trade that I’m playing with is how to game any pull back to the neckline. I don’t like the cross itself, I like the EUR and JPY futures. So I would buy the EUR and sell the JPY short to create an artificial cross. So long as I expect EURJPY to rise in price, I will make money. If the EUR falls, the JPY has to fall further. If the JPY rises, the EUR has to rise more. The reason I would do this instead of just the EUR or just the JPY is because of the nice clean technical set up on the chart. I’d be a fool to pass up the opportunity on a pull back since the risk is so clearly defined.

I’m long EUR for overnight – but I don’t want to put on the JPY leg without that pullback, so I will set my exit points for the gain. EUR has enough movement that I will take the ride if it falls, knowing that it will move back up to my exit point at some time in the next day. I’ve been through this enough times – it can be harrowing if you check your positions in the middle of the night, but it all works out by close the next day. Guess I’m lucky in EUR.

http://screencast.com/t/M2QzYjk2

Incidentally, I don’t believe that the EUR /SPX correlation is active at the present time – today should be proof of that. IF traders believe that JPY will continue to weaken – and they’re probably waiting for that neckline re-test (like me) – then the carry trade off of the Yen could be back on.

Here is a look at the EUR. The purple dashed lines are TD support and resistance levels and you can see that one of them is acting as a roof right now. Unless EUR can close above 1.3541, the bearish cross is still in force. To the downside there is the 62% FIB at 1.3497 (1.35 between friends) that is decent support given how EUR closed above and has not gone back below. EUR is back outside the chaneel again (it’s ghosted and quite faint). I’ve heard it said that 1.3570 is the level of note to switch over to bullish – and it is around where the 21 DMA (faint yellow dotted line) is located at the present time. To go up and be bullish, EUR has to cross both.

http://screencast.com/t/ZmVkNTg2NT