Living Inside a Broken Clock: When the whip comes down.

by gmak: April 6, 2010

HERE IS THE LINK TO MOLE’S important post from early this morning: ISEE Red Candles

After developing software for a database, disk manager, and screen (data-entry) generator on the APPLE IIe in Pascal – and being continually frustrated by the way AAPL prevented me from improving performance by forcing me to use their own “Sweet sixteen” poorly written assembly code, I had my fill. On top of that, I had issues with Jobs insisting on going for the Lisa instead of releasing a basic Mac – and literally giving the micro-computer to the MSDos clones. However, after fighting with an insidious Russian /Polish virus on my wife’s PC for 36 straight hours (did you know that the more nasty ones inject code into running processes that gets saved and effectively makes the virus permanent? – along with deleting the user license to make it look like an illegal copy?) I decided that enough was enough. We bought her a MacBook Pro. It was so easy to set up and use that the release from stress was almost orgasmic. I bought my own. What a sweet machine! I’ll check out the iPad in about 10 years. heh.

Speaking of a decade, the 10 year yield hit 4% briefly today. What a coincidence that the FED’s alphabet soup of liquidity has ended. I know that some feel that the MBS program goes on until the end of June, but that’s just the settlement of what was already bought.

The yield hungry Asians will probably put the bid under the USD tonight. I guess that could hurt the EUR. I’ve seen various thoughts in the blogosphere that if the USD gets strong enough, the cost of purchasing capital equipment will fall enough so as to make manufacturing in the US competitive again (if you have cheap enough capital – it replaces the labour at the margin).

If the housing market was dead before, its zombie has now been decapitated and the brains boiled and mailed to Zimbabwe.

On top of this it looks like the Middle Class is taking the crooks in D.C. at their word and pulling money out of Money Market funds like there is no tomorrow (which there may not be if Obama has his way). This may be where the consumption numbers are coming from – along with the brainwashed masses clamoring for their iPad. If TV fails to subdue, use the Internet and gadgets.

Greece is still keeping pressure on the EURO. The IMF believes that it’s a question of WHEN, not IF, that default occurs. Even though everyone says that Greece will never need to draw on the backing from the Eurozone, there are now a number of discussions occurring regarding the interest rate that should be charged on these never-needed loans.

In other news, apparently a previous generation of desperate old men in the USA pawned off tungsten with gold plate as the yellow metal itself. This would be a hard thing to pull off – and one brick does not a vault make. If this is true, would you want to buy even physical gold – without being able to test it? Already bought gold would drop in volume due to the fake gold, and the money or value store would have been destroyed. If you buy a Picasso that later turns out to be a forgery, unless you have some recourse back to the seller, you own an expensive piece of toilet art that no one would ever pay the asking price – unless you too cheated or lied. The spectre of fake items always forces the price of the real thing down if they cannot be differentiated, IMO.

You can’t make this stuff up, I swear.

Tick. Tock. Tick. Tock. Welcome to the broken clock.

EQUITY

Yesterday was a classic example of ramp and camp. It didn’t happen overnight, but at the open. Those clever Algos are switching things up. But they are consistent – I’ll be looking for the same thing today.

SPX has used the 10-day SMA to push up above both the 123% FIB and the trend line “Since Oct 21”. Next point of resistance is the 138% FIB at 1190.92.

I believe that there is some more upside. However, I think that conditions are ripe for a correction down to the 1125 level. To see why, please access the subscriber section by following one of the links below.

This is my busy, busy SPX daily chart. I want to hi-light several interesting developments that I can see. Remember that these are possibilities and not given. I am still not committing any capital to a long term view of ANYTHING. The following points refer the the chart accessed by the link below.

1. Look at the dashed circle. The number ‘5’ at the end of the blue line is a TD estimate of where this 5th wave will terminate (or wave ‘C’ if you prefer the bearish take).  The retracement value is about SPX = 1210. Usually, these TD retracement levels are high and the retrace occurs sooner – but it’s a target.
2. The purple ’11’ and ’12’ say that only one more bar is needed to complete a SELL countdown. This condition is usually in effect for up to 12 bars before it can be considered to be a false signal. That would take SPX to Thursday April 22nd. The ’13’, which will cement this SELL countdown signal (equivalent to buyer exhaustion) need a close above the high for the bar 2 days prior. Today, SPX would need to close higher than 1181. If this fails, then tomorrow SPX = 1187.73 is the magic number – and so forth.
3. SPX has been completely above the 55-day SMA for 24 days. If it does not go below in the next 15 trading days (before day 40), then there is a very high probability that it will be up there for well beyond 50 days.
4. I believe that any down day will see the 10-day SMA acting as a floor. (The orange dotted line) True salvation for the bears can only come, IMO, if the 21-day SMA is broken (yellow dotted line) – along with the “Since Aug 17” trend line. There will be massive support at the January high of SPX = 1150 as well. Somehow, SPX has to get past these in the next 15 trading days? Whew! I sense a possible waterfall.
5. TD Pressure has once again crossed above the signal line. Any decent down day, now, will push it back below and set up a low risk SELL. Please note that SPX has still not violated the most recent low risk SELL which occurred on Mar. 24, 2010 (the downward pointing red arrow above the bar next to the purple 10).

http://screencast.com/t/YjdmM2M2

Summary for the above chart:

• Overhead resistance will come at 1190.92, 1203.42, and finally at 1210.44. An inter-day punt could be made at these points with a stop at an appropriate distance above.
• Underneath support comes from “Since Oct 21” trend line at SPX = 1178.76 and rising 0.69 points per day; The 10-day SMA; The 21-day SMA, The “Since Aug 17” trend line at SPX = 1154.69 and rising 1.12 points per day; The Jan. high at 1150.45; and finally the 55-day DMA at SPX = 1123.32. Any of these can be played for a pop, with suitable stops below the point chosen.
• TD Pressure, TD SELL countdown, and TD Wave, all suggest some form of correction is coming up. What TD doesn’t say is how strong that correction could be. MACD sure looks undecided and can go either way at this point.

On an intra-day basis, we have seen a ’13’ followed by a ’14’ bar – and just like the weather seems to occur in ‘3’s – the probability of today (Tuesday) being an up day is about 60%. Look for the ramp and camp again as well – things come in threes, right?

FX

This section refers to the chart accessed by the link below.

On the daily chart, EUR has seen a bearish cross of the 10-day and 21-day SMAs. However, EUR itself is putting in higher highs and higher lows (so far off the bottom). As of 19:00 EDT on Monday, the 62% FIB at 1.3497 was the piece de resistance (pun intended) that would decide the tone. A rejection here would put the EUR ball clearly in the bearish court – because it would possibly reverse a couple of bullish trends in TA.

Looking at MACD and TD Pressure, the tone is bullish, IMO. TD Pressure has reversed course and is heading up. Don’t read it quite the same way as RSI. Here the “diversions” are not as important. Think of it this way. If the EUR price puts in a new local high, and TD pressure does NOT get as high as that previous point – it is bullish, IMO, because that move up was achieved without creating a pressure that needs to be release.

Meanwhile, the floor is the 10-day SMA at 1.3447.  There seems to be decent support at 1.3460 as well (as of 19:00 EDT).

I think the EUR will do what is essentially a reflection of Asian pursuit of higher yield (in US Bonds), until the spread with the German Bunds narrows, and then the game will switch.

http://screencast.com/t/NWYzZTlh

The EUR has been supported until now by some decent action in the EURJPY pair. The link below leads to that daily chart. Remember the H&S? Well it paid off handsomely so far (relatively speaking). The pink box in TD Pressure suggests that there is still buying power to push the pair higher. However, yesterday saw some profit taking in spite of the rise in the US 10 year (which should have suggested more relative downward pressure on the YEN).

The TD Wave ‘C’ can be considered “in”. The only way that EURJPY goes higher is if the up ‘3’ wave is to be completed. Notice that this pair can retrace quite a bit, and still maintain the same upward trend – so it is not for the faint-hearted, IMO – unless the capital is deep and the patience is there to hold over a couple of weeks.

http://screencast.com/t/MzAwNGNlMzYt

I don’t trade this pair, I use them as an indication of liquidity and the prevalence of a “carry trade”.

That’s about it for today – a lot of material but well worth reading, IMHO 🙂

Unless I get miraculously taken out overnight, I’m still riding a nasty long (horn) in EUR that is threatening to gore me. Remember the old joke? “But sir, the Matador does not always win.”

Update from this AM: Looks like the Matador (me) is being served with great fanfare. I will lick my wounds and get back into the fray. <thumbsup>

Asia was green except for Japan and Indonesia. Europe is solidly green. DAX is up a bit – WITH NO GAP.  There is that juicy gap between 6150ish and 6190ish from Thursday that should get filled if the PIGS news keeps coming back to haunt the EU. It looks like the DAX is forming a H&S  – well behaved – this AM. DAX is already at the right shouldr, and it looks like the target would be in the 6230 range. Info Tech and Health Care are red. Everything else is green with good breadth.

ES has headed down in a gently sloping channel. Pivots:

• R2: 1189.50 = Would be a new high, and ES / SPX need to release some overbought pressure first.
• R1: 1186 = This would probably be the top of the range. Unless SPX ramps and camps, this level could be a profitable intra-day fade (or short).
• Neutral: 1180.75 = ES managed to get back up here using the Europe open. ES is currently moving back and forth erasing the line. When it’s done, this support will be gone. This level was support until the sell off at 2AM EDT.
• S1: 1177 =  Likely to be the lowest level of the day, all things being equal. If there is any surprise in the data, then I would expect this NOT to hold. Otherwise…..
• S2: 1171 = This was support las Friday in the shortened trading session.

One play that I will be looking at over the next week or so, is to go short the CAD as it becomes stronger than the USD. Canada cannot survive at par or stronger, so there will be jawboning and measures to weaken the CAD. Unfortunately, there is the whiff of inflation – so the rock and the hard place are getting closer together for this country (and others).

Cheers.

Here is Mole’s post for the “link” challenged”

For some reason I decided to take a peek at today’s ISEE reading in equities just before I was about to hop into bed. Suffice to say that I’ll be missing out on at least an hour of sleep tonight as this story is too important to postpone until tomorrow.

Today’s equities only ISEE reading closed at a whopping 276. That is only three digits lower than the all time high of 279 painted on October 8th, 2007 – a few days away from the highest tick ever on the S&P 500, which on October 11, 2007 pushed to a record high of 1,576.72 and the very same day closed at 1,554.41. 512 days later the SPX closed at less than half that after having touched the March 2009 low of 666.79.

I am not certain what the implications of today’s reading will be but what I do know is that no market can keep going straight up forever. Yes, maybe we’ll see a 300 ISEE reading a week from now – but there WILL be a reversal and I now believe it will happen rather sooner than later. Maybe it’ll be nothing but a minor degree fourth wave and this craziness will continue for a few more months. Or maybe it’ll be a significant reversal and the bulls are about to learn a rough lesson in unmitigated greed.

Whatever it is – if you are long right now get out of your positions. All of them. You’ve had a great run – bears have been burned and you banked some mighty coin. But this episode of this story is over, done, complete. Get out now and laugh all the way to the bank – which most likely you already own.

Ignore this warning at your own peril.

Cheers,

Mole