Sunday, December 7, 2014

Market Analysis for Week of 12/8/14

My overall thesis continues to be that the Fed is forced to walk the plank toward tightening while the ECB heads toward its own QE as the BoJ bounces off the walls of the insane asylum they live in.  A week from Wednesday, December 17th, is the next Fed meeting.  The risk is dropping "considerable time" from their language, which would certainly add fuel to the dollar rocket ship, and crush gold and silver.

There's minor overhead resistance in the dollar just over $90, but I would think the $92.53 peak from 2005 would be a decent spot to see some profit taking and form a new base to launch from on its way to $99.  

The Euro looks on its way to short-term targets that would correspond with that.  Apparently, the ECB is announcing the scope of their LTRO this Thurs, I believe, so be aware.  

The USD/JPY blew by 120 and looks headed to 124 to test the 2007 peak. The pullback here should coincide with the eventual pullback in equities, so it might not happen until Jan, but both are very overextended, so it could happen anytime.  

Gold and silver are likely in big trouble.  I picked up my puts on Friday after the jobs number.  Fortunately, the market rallied into the US open so silver was only down like .15 cents and Gold was just under $1200.  I was hoping to get a spike upward from NFP, but it was not to be. I'm not worried about a few ticks on what I think will be a big move.  The best prices were actually Thursday due to a little premium erosion during the consolidation this week, as opposed to the top of the big spike on Monday.  There's no reason to be long this market unless it clears its downtrend line.  The risk is very high of gold and silver getting destroyed over the next couple months.  Target in gold is $1040/50 and silver $13.  Then another move lower after that.  A close above the downtrend line would negate it.  If it grinds up to the $1204 area you might be able to find a low risk entry, but that's a game time decision.  

Gold weekly. 

If you're someone who sees the bullish side of trades better than the bearish side, here is the inverse of the gold chart.  See how it's just pulling back into support?  Would you short this?  Not unless the trend line broke.  

Silver daily.  The yellow line is the 50-day EMA.  See how it stopped price?  It's not likely to get through there now, especially as we head into execution day on Dec 17th, and especially if it continues rolling over this week.     

Silver weekly.  Why would this downtrend not continue in the face of a soaring dollar? 

Equities are at a point that I can no longer psychologically handle.  There's never a time that you can't day trade, but I can't hold anything here.  For me, it's pick-up-some-blinds-as-you-wait-for-a-premium-hand mode.  Check out the weekly ES chart.  Note how every time it reached the top of the channel it eventually snapped back to the yellow weekly uptrend line.  I would like to avoid that even if it means missing out on upside.  Being that we're headed into holiday season, chances are we grind along this upper channel line in the most annoying price action possible.  In order for me to build a position to hold I will wait for a pullback to the old highs at 2014, which may not happen until January.  With the ECB sounding likely to initiate QE in the 1st quarter, and the soaring dollar, which should keep pressuring the Yen and keep the carry trade alive, I'm expecting the overall uptrend to continue into the Spring.  It's just a matter of dodging the bigger pullback that will come at some point.   

The only thing I have to say about oil is it's not likely done on the downside.  The Specs actually added to their already net long position on the OPEC crushing, so there's plenty of longs still to liquidate if it keeps going lower.  I'd really like to know who these funds are and how they are still in business.  Check out what the bottom looked like in 2008.  See how it went sideways for several weeks and tested the bottom before turning back up?  There's really no reason to try catching the knife until you see something like that happen.  Keep in mind that the rocket ship it turned into out of the 2008 bottom was driven in large part by QE and a loosening Fed.  Now we're headed into a soaring dollar and a tightening Fed.  This could stay ugly for a long time.  

I don't think it's even possible for the Fed to normalize interest rates, but they can head down that path until the soaring dollar forces them to back off.  I would love to believe in the magic of QE but I don't.  All they've done is mask the symptoms of a depression and the lack of real demand that can't be compensated for by flooding the economy with cheap debt. Eventually the consequences of defying the laws of nature will catch up with the central banks, so while I'd love to see a strong jobs number every month for the next three years, I believe this "recovery" is dependent on repressed interest rates, creating money out of thin air, and deficit spending, all of which would be impossible if we lived in a world with any wisdom or respect for history.  Until we see the gov't balance its budget, the labor participation rate return to normal levels, interest rates stabilize at 4%, and the rest of the world not collapse into default, all the people proclaiming "the recovery is real" should be forced to stand in front of  "Mission Accomplished" banners.