Living Inside a Broken Clock: Thursday, Feb. 4, 2010

Obama is going to fix the world by arm-wrestling China into re-valuing the Yuan.  Meanwhile, the USA is going bankrupt from the grass roots up, as people, municipalities, and states run out of money. How does this happen when the biggest stimulus imaginable has been going on for a year?  Tomorrow we see how big a lie about jobs the .gov is willing to admit to. Be assured that there are more cockroaches still scurrying around.  There is growing pressure for Treasury to disclose the new mysterious direct bidder(s) that have been showing up at auction to save the day.

The PIIGS and STUPIDs (see Zero Hedge for explanation) are being slapped around in the credit markets. All is not well in that federation.  The USD catches a small bid – but oddly enough, gold has not been responding to the USD strength like it used to. Fear is growing. Overnight, the down bars had more volume (by eyeball) than the up bars.

Does anyone know what time it is?

EQUITY

Asia was red. Europe is red. Ony LATAM and Middle east is green on my pie chart. The DAX gapped down at the open and has caught a bid above the support levels from Feb 1st, at the supportlevel from the open on Feb 2nd. Just eye-balling, suggests that 5600 is still an important point for support – and the tale if the trap door opens.  Oddly enough, Financials, Info Tech and Telecom are green.  The index appears to be range bound between 5625 and 5640 – with the odd foray down to 5620 and up to 5650. Not that German mfg orders were weaker than expected. Cue China.

SPX daily (and ES daily) are still in the clouds, Ichimoku style.  The signal is buy or sell, the trend is bearish or bullish or neutral.

1. Conversion line is below base line = SELL; The Price is in the cloud which is Neutral. The downward movement of these lines is Bearish
2. The lagging span is below the closing price of the lagged day = SELL; The price “lacks support of the mountain” .
3. The Cloud composition is rising and getting thicker indicating support for Bullish; The cloud is projected ahead and looks to be weaker from Feb 26th on, and Bearish from March 5th.
4. The candlestick pattern for yesterday was red and totally inside the previous days. Experts chime in on whether this means up, down, or no clear direction.

Overall, Ichimoku says that the outlook is conflicted with two SELL indicators, 1 bullish and 1 neutral trend. How to proceed?

SPX daily re-tested the “SInce Aug 17” trend line from below. To me, this is a sign that the fall can begin. The trend line is at SPX = 1108.70, which is about the top of the cloud. Looks like a good point to decide is a SELL trade is wrong, or to put on a BUY trade if breached decisively. The 50 DMA is just above at 1113.34 – which is about the 1114 resistance line of the 1086 / 1114 box SPX has been in, on and off.

SPX got a push off of the Ichimoku conversion line yesterday, which was at the LOD  = (SPX) 1093.97.  The pre-market looks like it will be headed down.  The 5 DMA is below at 1089.64, and then there is the box bottom at 1086 for support. The cloud bottom is around 1080.

My Interpretation: Beyond intra-day, SPX will trade sideways for a while (Ichimoku suggests a lack of clear direction with SELL signals trading off against that rising and thickening cloud; Traditional TA suggests historical short term support nearby, but also tight overhead resistance.

Intra-day, the waters are clearer.  ES trended down overnight, but the 9 and 34 pMA have put in a recent bullish cross. MACD is trending up, and the price has entered the cloud. Note that the cloud is trending down and thickening – which suggests a bearish tone. That trend starts to change around 9:30 – 10AM based on the Ichimoku projection (I’m as curious as you are as to IF this has a good hit rate – think of the possibilities on the daily chart).  TD has an overhead resistance point at ES = 1094.25 – which is between two pivots.

• R2: 1105.50 =  Well above the highs since the most rec ent waterfall in January. This was resistance from Nov into December until it was breached in the second half of the month on lower and declining volumes. My interpretation is that this is strong resistance.
• R1: 1101 =  around the recent highs from Jan 28th and Feb 2ns (midnight). Looks like it will be tested a third time.
• Neutral: 1095.75 = Right through the heart of the last few days’ activity.  Above the TD resistance level – so any waves that get here will be weak, IMO.
• S1: 1091.25 = Was around the resistance level on Tuesday before the ramp up. Resistance turns into support once breached.
• S2: 1086 = Also a watershed number for ES based on volume and activity (see old ZH posts) Looks like it was a support level for the thrust up on tuesday.

So we’re clear. I’m not playing ES right now, I’m actually short the CAD. When I post a trade suggestion, it is one that I would take if I weren’t trying to maintain discipline about lining up longer and shorter time frame trends. I provide enough info in the trade so that anyone can see what assumptions I am using, as well as my risk points. I DO NOT post possible trades as a lark – but only ones that might have a higher probability of paying off. Many of them may fail, but overall I believe that the ones I post that do pay off will provide a greater gain than all the losses. If it is a “scalp” – which for me is a quick in and out only, I will indicate this. Remember – there is NO sure thing. There is only a view, a trade, a disciplined method, and risk management.

FX

Ho ho! DXY has clawed its way back up into the rising channel that began Jan 25th. The pivot at 79.659 is providing resistance at the moment, and the next pivot is a long ways down at 79.17.  However, the channel does appear to be putting a floor underneath the USD. There is nothing like fear (see PIIGS, STUPIDs etc) to turn toilet paper to a real currency once again.

Short term, I’m seeing EUR putting in a floor at the pivot at 1.3844 (S1) and looking like it is consolidating for another attempt up. Derivatives Week of Jan 25 says that Hedge funds and Corporates have been taking short term bets for the USD against the EUR using one-week and one-moth USD calls. “Greece is becoming a serious issue for the euro….” NOtional traded in one day was about USD 500 mm.

NEWS

Productivity in the USA is probably keeping down inflation (i.e. firing people keeps costs down and reduces demand). The PIIGS markets are supposedly leading the weakness in worldwide equities. TALF is ending soon. Credit spreads could widen. BOE will pause in its QE but could restart as deemed necessary. The BOE and ECB have eft rates unchanged. Greek strikes may hinder the deficit-reduction plan

DATA

8:30 AM EST

non-farm productivity; unit labor costs; initial jobless claims; continuing claims.

10AM

Factory orders.

Cheers.