Living Inside a Broken Clock: Tuesday, Feb. 16, 2010

Greece seems to be on everyones’ mind. Why? With a population of $10 million, around 2.5% of the EMU – probably less of a proportion of the GDP – it is hardly a game changer. I’m more worried about GS, the eminence grise behind Greece’s accounting shenanigans to hide debt in an off-B/S entity. How is that for the twist in the plot? Maybe that soon-to-be toxic waste can be bundled by GS, securitized, and then sold to the FED. It’s gotta be a win-win proposition.

If Greece did this, and paid big money in fees to do so, what might be rotting in Spain, in Eastern Europe, in Italy?  Suddenly the acronym STUPIDs makes a lot more sense.

Meanwhile, back in the US-SA, the slow implosion of munipcipal and state budgets and economies continues. Never mind Greece, what about California, Florida, Utah, Nevada, Minnesota, MICHIGAN!, [fill in your own favourite]. Tick. Tock. Tick. Tock.

EQUITY

When looking at the monthly SPX, I am struck by the fact that a 9-bar SELL setup has completed, and that the bar after saw SPX fall – only to hang on the end of the 5 month MA. TD Pressure has simulataneously signalled a low risk SELL, with a plausible “this trade was wrong” stop around 1186 – 1190 (it’s hard to read the exact number). So how far does the monthly data say the SPX could fall? It depends on which trend line is dominant.

If I draw a trend line connecting any 2 points – and SPX pokes above it – should I be redrawing to touch that higher point, or is that simply the margin of error when trying to apply a tidy mathematical system to messy reality?

In any case, the monthly SPX says going down. The daily SPX says not in a straight line. I may “comment” on this in more detail.

Asia was mixed, and Europe is mainly green.  I see red in Spain and Ireland. And a lot of grey from markets that weren’t open. The DAX gapped up at the open abot that magical 5550 level – and tested the highs from Feb 10th. Since then it is trending down. Note that the gap would be closed around 5500.  The move up is in every sector except consumer staples and seems quite broad-based in the stocks in every sector. Unless this is distribution, I wouldn’t expect the gap to close. The ZEW (German confidence) was up and higher than expectations. Guess they like the idea of owning Greece.

ES came off an abreviated session yesterday to run up into the Europe open after sitting flat from lockup through to 2 AM. Pivots:

• R2: 1092.75 = This was a support area in December before the move up. It is also just above where TD has a reversal point on the latest wave up. Note that my experience has been that these reversal points are rarely reached and the short-term turn happens before them.
• R1: 1086 = The roof from the ramp overnight. This will be test again. Although the same number, it is lower than the SPX = 1086 barrier that we’ve written a lot about.
• Neutral: 1073 = Looks like this was support at the end of Jan / start of feb – before the most recent waterfall.  It looks like this was the floor overnight. Support will likely come in strong here on any pullback
• S1: 1066 = Battle of Hastings. (hat tip to Schwerepunkt). Support area from Feb 10 – Feb 15th.
• S2: 1053 = Down around where support came from off the low of Feb 5th

RIght now, TD Waves says that ES is either ending a 5th wave up – to be followed by a correction down, or is in Wave 2 of 5 (down seuquence) – with the big 3-wave coming up. My money is the ABC – if only to be symmetric with the Gartley pattern. Here are those numbers again:

Here are the numbers I get 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

FX

DXY is down. CAD, EUR, JPY, and GBP are all up. The risk trade is back on. I’m playing DXY short, as you may have noticed. I go in and out. The reason for this is that Traders with bias are like pigs – they get slaughtered, IMO. By trading DXY, I am putting my brain into unfamiliar patterns to shake out habits that could cost me money and to remove bias if I can.  I’m doing this with smaller amounts of capital at risk, and I am learning a great deal about trading from it (we never stop learning). Remember, a trader can get the market direction right and still lose money.

NEWS

EURO-furor = EUR finmins are playing heavy with Greece. They need to bail it out, but also need to make the medicine taste bad enough that other stupid governments aren’t tempted to follow suit. How many SPXs of off-B/S debt for .govs are there out there?

DATA

UK is howing some inflationary pressure.  German economic sentiment is up and exceeds expectations.

8:30 AM EST = Empire manufacturing. 9:00 = TIC flows, where we get to peek under the Kimono of foreigners with money. 13:00 NAHB housing market index. 17:00 = AC consumer confidence.  See briefing.com.

I’m still in training (all this week) but I’m trying to scalp some chump change, practising on DXY.  I see an upward bias in ES – the most effective short term trade will be to go long off of any reversals – playing the bounce. But this takes confidence, good stops, and the willingness to take a few stings for garnering that pound of flesh in return.

Cheers.

Update 11Am EST

Eric here just letting you guys know I just updated the Geronimo Page, take a look at the most recent numbers.