The Glass on the Edge of the Table

by gmak: April 8, 2010

Please put my sobriquet = ‘gmak’ in any comments so that I know that they are for me. If you can put a reference to what you are replying to, that would help as well. Now on with the show.

Consumer credit contracted by $10.5 billion vs. an expectation of -0.7 billion. However the prior was adjusted up to an increase of $10.6B vs. $5.0B. Net / net, Households borrowed in January and then reduced by an equal amount in February. The market reacted poorly probably due to an entrenched expectation that this would be another green shoot.

Here are the type of games that the IB’s and PB’s ‘needing distribution’ are now going to use to force the issue on those who WILL NOT cover their shorts to avoid taxes.

The issue in Greece seems to be the short end of the curve. Rates are moving up in an attempt to keep deposits, which are starting to leave at an alarming rate. this could be why the top 4 banks have asked for access to the remaining EUR$17 bb in guarantees – the deposits are funding for a bank and they need to be replaced – which means someone, somewhere has to be willing to lend money to Greek banks. Since this is becoming less and less likely, alternate sources of funding are required. What better source than a .gov guarantee (ask the US financial system about how sweet that is…).

There are rumours aplenty that China is about to re-value the Yuan and this seems to be putting upward pressure on the Yen and the USD at the expense of most other currencies.

Tick. Tock. Tick. Tock.

Meanwhile, Greenspan espoused how he was right 70% of the time. Sure. You can have just one bullet in the revolver – be wrong 17% of the time – and still die. In other news, his wife is 70% pregnant.

SPX dropped 6.66 points close to close (Oh puh-leaze! Don’t even go there! And you know who I’m talking about). Yet it was on higher volume – leading to a lot of bearish chatter on the blogosphere. Live by the short, die by the short – until distribution is finished.

Overnight Update

Asia was red except for SKorea. Breadth on the negative side was strong with 60% – 70% of the stocks on the dark-side.  The DAX GAPPED DOWN at the open and closed the gap from April 1st! RIght now suport is aruond the 6150 level. Greek bond spreads (to Germany) have widened, but Italy has narrowed. Only Healthcare is in the green and breadth to the downside is almost 100% (DAX). ES sold off from the lock upand bounced off of the S1 pivot.  With today’s data being initial jobless claims at 8:30 and ICSC Chain store sales (YOY) for March at 10AM EDT, there could be volatility – but I don’t think anyone pays attention to ICSC given past market reactions, and I think the unemployment is old news – it’s death knell was yesterday with the consumer credit numbers.

ES Pivots:

• R2: 1192.50 = Out of reach baring aliens landing and giving gold to the PIGS.
• R1: 1185.75 = To reach here today is a possibility – especially if the risk trade turns back on.
• Neutral: 1179.50 = This was the high spot into the first lock up, and ES never got back up there all night. Europe say a selloff from the 1176.75 level – and that is THE technical resistance level of choice right now – with 2 rejections this AM. Right now, into the bell, the 5 min chart is showing a wave 4 up of 5 (we’re talking sequential, not nested waves like EW) which suggests that we wander sideways, test 1174.50 and then ‘rocket’ up to the 1176.75 llevel. Another rejection here would send ES back down to the S1 level for a second major test. Right now, ES puts SPX just below the “Since Oct 21” trend line with a gap down on the open. This can change by the open – but it provides context.
• S1: 1172.75 = Bounced off of here after the Europe open. The chart looks like a mini cup and handle since 3AM EDT. I guess ‘wave 5’ (we’re talking Megan’s Bay on St. Thomas, not Hawaii for wave size. heh). will be the impulse off of the ‘handle’. lol. These little waves are so-o cute.
• S2: 1165.50 =  I don’t think that we’ll get here if the bulls remain in charge. This would put SPX at around 1170, which would be between the 10-day and the 21-day SMA.

The Glass on the Edge

A famous actress of the stage was being upstaged night after night by a good-looking younger ingenue who had several dramatic and important parts in the play. One night, just before an intense dramatic scene involving the younger actress, as she was leaving the stage, the elder dame left her glass of wine (part of the recent action) balanced on the edge of the table. Needless to say, this is where the audience’s attention was focused throughout the intense and dramatic scene, wondering if the glass would fall – and of course ruining the moment of the younger thespian. It turns out that the famous actress had put a piece of two-side tape on the glass to hold it in place – and showed once and for all that, with experience, one can upstage without even being present.

SPX is that glass. Let me explain.

This is the Daily SPX chart I’m referencing.

SPX sits just on the edge of the “Since Oct 21” trend line – as marked – and as seen within the white circle. At the same time, TD Pressure has crossed the red signal line to put in a Low Risk SELL, with a stop-loss at SPX = 1207ish. Going short means that it would take 25 ES points, effectively, before one could know for sure that the short trade was wrong. As well, I have seen TD Pressure cross below the red signal line, only to reverse a day or two later and go back into overbought territory – it’s actually quite common in a fantasy bull market.

If SPX had closed below the trend line, I would feel more comfortable about going short. As it is, I crunched the two most recent bar shapes and came to the conclusion that on Thursday, SPX CLOSE > OPEN is the most probable scenario. In fact the combination of shapes from Tue. and Wed. has only occurred once before since 1982. It’s the ’53’ shape of Wed’s bar that is interesting. It indicates that the most likely bar shape tomorrow is with the CLOSE near the HOD.

I’m not committing risk capital to a heavy short position. I’m staying light and playing intra-day still – because it’s the only way to keep enough capital to surf the waterfall when it comes. Repeat after me: I will avoid trading a bias that is longer than a few hours.  🙂

Final Word on SPX

This isn’t over yet. It could be that we’ve just seen a distribution reindeer game of overthrowing the trend line – 3 days now. Until SPX closes below the trend line, then opens even lower and closes even lower still (i.e. continues to move down close to open to close), I won’t believe the move. Look at the 3 bars that are above the trend line in the last week. The purple ’12’ closed above, but the purple ’13’ opened LOWER than the previous close – so it is not what I would call a DECISIVE MOVE above the trend. In a decisive move, the ’13’ bar would have opened higher than the close, and closed higher still. Clear? The breakout is not entirely believable at this time.

I need to see a DECISIVE MOVE in one direction or another. For the down trend to be decisive, I need to see a close back below the trend line. An open that is lower than that close, and a CLOSE < OPEN on that same day. That is a DECISIVE MOVE in the downward direction.

I’m expecting an up day tomorrow – meaning CLOSE > OPEN – due to the probabilities. But, just like there is no such thing as 70% pregnant, the market can only be up or down – not some percentage. So I remain open-minded and nimble, and I will participate in any down move on an intra-day trade – in some form or other. The fact that SPX might gap open below that “Since Oct 21” trend line that I’ve been harping on about, is not bearish by itself. The move up was not decisive, but one bar down does not a trend make. I would expect, if the tone is to remain bullish, that SPX would close above the trend line, and above the open. Anything else takes me back to the drawing board to re-examine this thesis.

In my gut, I know that there is distribution taking place. I think that, since the mutual funds are tapped out, and the consumer is absent, that distribution will take place courtesy of well-moneyed shorts. I believe that some weakness will be engineered to draw in the shorts – and then the subsequent snap back up will force a lot of covering for distribution. Paranoid? Maybe. Possible? Definitely. The market usuallly doesn’t collapes without the major players being out. If a down move is starting – expect it to be in fits and starts with well-timed rips to the upside to force the weak shorts to cover and give some distribution to the guys with their hands in the monkey jars.

FX

The daily EUR refuses to go down and it sure looks like a bottom is in, in spite of the bearish cross between the 10-day and 21-day SMA.

TD Pressure is at zero (0) – the lowest value possible. There is a divergence here in that the last time EUR was at a low (around Mar 25th), TD Pressure was not as low as it is now. It took more pressure to get the EUR this low – and it’s not as low as it was previously. Hence, a divergence.

On the other hand, the momentum is down. But, with a record number of short contracts one has to wonder where additional selling will come from. If everyone is on one side of the boat…

I agree that there is still downward pressure from sentiment on Greece and the belief that the EUR will die a painful death. But, with the news and Marx brothers farce that is the EU and Greece at the present time, (always in our collective face), how long will it be before everyone becomes inured to a Greek default? Bad news wears off eventually while good news is forever. Bring in a few CBs like the Swiss and Asians who have an interest in seeing the EUR stronger, and…..

I’m not going to play FX overnight anymore because those wily Asians have many vested and hidden agendas, and they can push the currency one way or another for a short while – enough to drain capital beyond what has been allocated by humble traders such as yours truly.

I’m going back to  what has been good for me – bobbing for apples during the day and scalping pips.

On a parting note, it seems that GS has been selling EURJPY, AUDJPY, and USDJPY in large quantities over the last day or so. Something is likely up – Greece? An Asian country? Maybe China? In any case, let’s wait for what their next recommendation will be after they’re all in – likely a buy on JPY to give themselves an exit. This certainly sounds negative for equities, though, doesn’t it?

Cheers.