Living Inside a Broken Clock: Thursday, Feb. 18, 2010

There will now be a committee set up to identify and deal with systemic risk in the financial system in the USA. Somehow, an audit would hinder the FED in its ability to do its job, but a committee of political hacks is beneficial? Welcom to the broken clock.

EQUITY

Thursday in OPEX. Is there a more predictable day for trading? Some would argue not. The sequence for quite a while has been a high probability of an up Monday and a down Thursday, leading to adequate profits by going long on Fridays near the close, and closing the position on Wednesdays.  Today seems to be favouring that higher probability scenario.

SPX Daily continues to put in time towards the “B” point of the Gartley pattern. Here is a reminder of the numbers for SPX:

X = 1150.45 (Jan 19)
A = 1044.50 (Feb 5)
B = 1109.98 (projected)
C = 1058.50 – 1069.50 (projected range)
D = 1124 – 1135 (projected range) Go short here if the pattern holds

If the current market patterns are maintained, SPX should be there by Wednesday of next week. What is interesting is that the TD wave count is lining up with the Gartley pattern. SPX daily is in the process of laying down either wave B of ABC following a 5 wave up sequence, or is putting in wave 2 of a 5 wave down sequence.  EIther way, the next wave is down – whenever this one ends.

TA does NOT drive the market. The market DOES NOT CARE what you think, nor how cleverly you draw lines on a chart. Waves are obvious. The market never goes straight up nor straight down. Hence, it will go up then go down. Thinking that a ratio taken from the spiral of sunflower seeds can predict where this will happen is nonsense. If SPX gets to point “B” and then heads down – it will be a coincidence and nothing more. The numbers merely give traders a point to aim for.

Asia was red, except for Japan (the JPY was weaker). Europe is all green. The DAX gapped up at open and seems to be trending sideways within a 20 point range. Smack! Range trading. Is there any easier way to pick up some cash? Utilities and Consumer Discretionary are the only red sectors. The broad-based move, the range bound sideways move after a gap – this adds up to distribution in my mind. The game is on.

ES overnight traded in a rane between the pivot at 1094.75 and somwhere around 1099.  It faded off of the lock up and trended sideways until falling some more into the Europe open. The DAX gap up did some good and ES rose from its slepp to test the highs of the night again.  The action looked quite well behaved and suggests that the AH market shenanigans are not as prevalent as they have been in the past. With additional liquidity drying up, its hard to play reindeer games. Pivots:

• R2: 1105 = Puts SPX up near the Gartley “B” point. I doubt this will happen on OPEX Thursday.
• R1: 1102 = Notice how thight the pivots are to each other. Low volume and diminished volatility. While not exciting, these are great markets to play the swings in the range and pick up a few points with lower risk. This level was around the resistance from Jan 27th and Feb 2nd – before the Feb waterfall.
• Neutral: 1097.25 = This is the TD resistance level from the waterfall.  ES is running along this at the present time, with minor deviations to either side. I would expect a downward move at some point to the S1 pivot – but only based on OPEX Thursday lore.
• S1: 1094.75 = This has already been tested once in the overnight. It’s a likely place for ES to close heading into OPEX tomorrow, IMHO.
• S2: 1090 = Looks like the resistance level from Feb 16th. The 34 DMA is above this point so reaching it today would be a surprise to me.

FX

Here is some data and news regarding the EUR, courtesy of Forexlive.com:

The IMF has announced 191 metric tonnes of gold for sale. A metric tonne is about 2,200 pounds. At 16 ozs in a pound and $1100 per ounce,  that comes to around $7.4 billion. The price is down – no surpise and that would soak up a bit of USD.

DXY is up.  CAD and JPY are stronger. EUR and GBP are weaker. ES is slightly down. See the pattern? I played DXY long and short on swings yesterday. Right now, I am DXY short – playing off of the upward trend in EUR that I see on the 3 minute chart.

EUR hit a nine month low. It think its time for a relief rally and consolidation before the next move up or down.

NEWS

IMF gold sales (seemed to matter to the price of gold. heh.). SEC may give investors more say on board of BofA. UK tax receipt woes leads to “first” January budget deficit.  FED sets goal of “eventual” exit from housing finance. NOTE that even if the FED does nothing, their MBS holdings will diminish steadily over time due to principal repayment. ZH computed approximately $10 – $12 bb per month going forward – but I haven’t confirmed this yet. Obama is going to meet the Dalai Lama and spit in China’s tea. rut-roh.

DATA

8:30

PPI; Jobless claims;

9:00

RPY composite

10:00

Philly Fed; Leading Indicators from January. (remember that these include the equity market so it is almost a self-fulfilling prophecy. Only works if you believe that SPX really REALLY discounts the future at the present time.