Sunday, January 25, 2015

Market Analysis for Week of 1/26/2015

So Draghi finally does QE.  At least he didn't disappoint for once.  It's not going to work, but that's irrelevant at this point.  I don't understand all the confusion about inflation and deflation.  A deflation of prices due to increases in efficiency is unambiguously good.  A deflation of prices due to structural employment decline or the deflating of a falsely inflated asset bubble (which is what we have) is unambiguously bad.  Deflation is always bad for producers like miners and farmers, it's always bad for people in debt, and it's always good for consumers who buy stuff.  There is no casual link between inflation and economic growth.  They only happen simultaneously in a system that doesn't restrain debt issuance to the projected growth.  Then you get too much money in circulation at once.  When you combine that with optimism about the future it increases the velocity of money as people spend, but that doesn't mean inflation is desirable, nor does it mean that inflation leads to growth, especially when you're dealing with structural employment and demographic issues.  Why does a boob like me know this and not the big brains running the joint?  I guess it really boils down to the people who understand sound money and free markets (and how central banks and governments distort them), understand what is happening, and the people who don't, don't, especially the people doing the distorting.  Strange world we live in.

Dollar monthly.  Couldn't be happier with this.  I've moved in and out of it unnecessarily a few times to avoid the binary events, but still tracking $99.  A strong dollar can not work in the debt saturated world the central banks have created, so the Fed will be forced to stop this.  I agree with the folks who think the Fed will raise rates in August.  Except I think the year will be 2027.

EURUSD monthly.  The next spot for possible support is 1.0750.  It seems like this wants parity and eventually the all-time lows.  I'm doubtful we don't get a sizable bounce at some point that I'd like to avoid.  I'm hoping to see it through to the 1.0750 mark and see where we stand.

Gold daily.  Gold is kinda remarkable.  While I got the inflection point in the $1220s right, I was mistaken in the urgency of the Commercials to lock in prices.  They obviously have more confidence in the Specs to push prices up than I thought they would.  Technically, both gold and silver have head-and-shoulder bottoms.  Gold tends to be backtesty, so actually the most ideal price action for the bulls would be weakness down to the $1225/$1235 area and a V-shaped bottom.  But that doesn't necessarily have to happen.  It could make it to the next resistance point at the downtrend line from last years highs that runs through $1330.  I suspect a pullback from there if it happens first, which may in fact turn into a backtest.

USDJPY daily.  This tends to be a continuation pattern.  Equity bulls will want to see this break to the upside.

ES daily.  This is a little sloppy, but it broke the downtrend line.  If it holds the 20/50-day for support, it should continue higher.  Barring a breakdown in the USD/JPY, I'd expect new highs in the coming weeks. The top of that channel hasn't been broken in three years, so you have to be careful there.

I've been playing the NQ.  It's still in the daily downtrend, so it was an easy spot to take profits at the top of the channel.  I'm looking to reload this week, even if it's at higher prices.  I just want to get past the Greek election thing.  Apple earnings are Tuesday.  I'm thinking strong earnings will break this downtrend and we're off to the races.  We'll see.

NQ 4hr chart.  I used this uptrend line a couple times for entries.  If it comes down there again, I'll give it another go.  If this uptrend line breaks for some reason, I'll step back and see if it wants to go lower still.  I bet Apple resolves this issue.

Nasdaq composite monthly.  If we breakout this week, I'm still thinking we're headed for dotcom bubble highs, fueled by central banks of course.  You have to separate the corporations, who are doing fine as they expand due to globalization, and governments who have unfixable balance sheet issues as the jobs in their countries are stripped away, leaving them with exploding debt and dwindling workers to pay it.  

 Bonds resolved the giant triangle to the upside.  Equities would sure like to see bonds pullback a bit.  While short-term pullbacks could happen, I think they are buying opportunties.  Looks like we're headed to the highs.  I can't really reconcile being bullish on equities and bonds, but that's bubblenomics for you.  I think stocks are staying bid due to central banks and bonds are staying bid due to reality.

Oil daily.  The bounce at the monthly trendline was not even worthy of calling it a bounce.  It's been holding the 10-day EMA, which is what the strongest of trends do.  The monthly uptrendline around $47 isn't completely dead until Jan closes, though.  Here's a possibility to consider.  What if we get a final washout on Fed day this Wed that leads to a sharp reversal to get that close on the $47 monthly uptrendline?  I'm not predicating that or anything, but if they want to respect the technicals, it could be a fast lucrative trade.

Oil monthly.  If Jan closes below $47, it's likely headed to the 2008 lows, which is another thing equities would like to see reverse.  While the central banks forcing stocks upward should continue there certainly are more cracks appearing in the illusion of their recovery.

I sure would like someone who thinks a real recovery is happening to explain why oil, copper, steel, iron ore, lumber, and all the rest of the commodities that actually create stuff in the real world are moving dramatically from the upper left to the lower right on the charts.  And why long-term bonds are staying bid.  And why the labor participation rate is at 38-year lows.  And why we keep going into greater and greater debt with nothing to show for it.

These three charts are pretty much the only thing you need to know to understand what's happening is not fixable by central banks.  Employment since 2000 and the demographic spending pattern of the baby boomers.

Ever since 2000 when globalization stripped the manufacturing base from the developed world and transferred the jobs to the emerging economies, the central banks and governments have been scrambling to fill the hole by creating false demand through a stock market bubble, a housing bubble, repressing interest rates, flooding the world with money, and deficit spending.   What should have happened in the late 90s as corporations sought higher profits through cheap labor is a lowering of developed world wages to keep the jobs onshore.  But governments impose a minimum wage on the free market and unions priced themselves out of work.  So the jobs went overseas and there's been nothing to replace them.  Globalization is deflationary.  When you compound the problem with the demographic spending pattern of the baby boomers on the decline and a world already awash with debt, there is no source of real sustainable demand, and certainly none capable of paying back the debt.  The central banks are trying to jumpstart a car with no engine in it.

Sunday, January 4, 2015

Market Analysis for Week of 1/4/15

I hope everyone enjoyed their holiday.  Let's start with the dollar monthly.  While I still think we're headed for the 99 handle, there is an upcoming point of resistance at $92.60 that could lead to a profit taking pullback.  If you look at how the dollar trended up in the late 90's, it's rare to see 7 months straight up.  This also corresponds to an upcoming support level in the Euro.

Here's the dollar daily.  I'm not personally interested in stepping in front of this train to short it unless it creates the perfect scenario where it establishes a high and then retests it and gets rejected nearly to the penny.  Sometimes that happens intraday and if you happen to be sitting there watching it, you can literally have like two ticks of risk for a shot at the pullback.  That's the only way I'd do it.  The uptrendline, which was the bottom of the Fed day pullback, is a buy until it gets taken out.

Here's the Euro futures weekly.  It looks like it has its eyes on the 1.1880 horizontal support. Also take a look at the EUR/USD monthly.  The risk/reward for staying short diminishes as we approach those levels.  The next Draghi day isn't until the 22nd.   Ideally, it would be nice to see a dollar and Euro push into their levels for NFP, pullback for a few weeks, and then return to trend resumption on Draghi Day.  But he's a very disappointing man, so we'll see what he comes up with.

USD/JPY monthly.  Not sure if it can make it to the 124 handle if the dollar index respects the resistance line at $92.60, but this too could align altogether.  Just something to be aware of.  It would be nice to see a cup and handle form here.  Japan has no shot of avoiding inevitable default, so I can't see how their QE ever ends until the Yen is worthless.

The ES popped right back to the upper channel line from yet another VIX crush into Dec expiration.   I decided to trail a stop under the 20 period EMA on the 4-hour chart and got knocked out as a victim of The Law of Trailing Stops: when you take profits, you should have trailed a stop, and when you trail a stop, you should have taken profits.

I'd like to see how it acts this week before getting involved again for more than a day trade.  Every time the ES has taken out a swing low for the past couple years it has rather quickly made a new high.  Until we see a swing low get taken out and then fail to make a new high, I'm not interested in the short side.  I'd rather just wait for support.  The first spot to watch is the 2014/20 area of old highs and uptrendline from Oct lows.  Below that is the weekly trendline at 1990.  

NQ monthly.  There's room to pullback quite a ways and still be extremely bullish.  I don't see any reason for dire concern of a final top yet.  Is the oil meltdown problematic?  Yes it is.  But that could take months for real world effects to kick in.  There's all kinds of other reasons that could happen first, but until one of them does, it ain't ovah.  Yet.

 Nasdaq Composite monthly.  Dot-Com bubble highs.  Why not?

NQ daily.  It held the 50-day on Friday but not convincingly.  I'm waiting to see if we test the old highs again around 4100.  

Gold is doing its triangle thang.  I'm thinking it breaks down, but I am noting the extended dollar and the possible need for a pullback.  I will short the downtrend line but that spot is an inflection point.  If it closes to the upside, I will likely look to go long for a short-term trade.  I'm currently expecting that downtrend line to hold, but the market tells me what to do, not the other way around.  Note the two previous lower highs at $1255 and $1240.  Gold usually respects its trendlines, but it could maintain that structure by putting in another lower high in the $1220s and remain bearish, but it should close beneath the trendline if that happens.  I'm also looking at the 1200 area where the 50-day EMA is for a possible rejection short.

Same thing for silver.  Any move up to the downtrend line is a gift until proven otherwise.  This looks more like a bottom than gold, but it ain't acting like one.  If the metals break down it will get ugly fast.  $13.10 silver is my next target.  Like gold, if it happens to breakout of that downtrend line for whatever reason, I will look to go long.  I just don't think I'll have to do that.

Oil monthly.  I would be surprised if oil doesn't bounce at the monthly uptrendline around $47.70, possibly as high as $68-$70, but I would think the Commercials will be eager to lock in prices, and the longs currently have the fear of God in them, so it seems more likely we'll see a return trip back down in the months ahead.  And if it fails on the return trip, all hell breaks loose in that industry, which may finally affect equities.

Oil daily.

Bonds weekly.  I had the right idea for bonds in 2014 but I didn't trade them much.  I should remedy that.  I would think the short end would come up in yield until the Fed realizes it has to back off from its tightening fantasy, but the long end should continue pricing in the depression we're headed for and headed higher in price.  Maybe we get some short-term positive data that causes the long end to pullback to its uptrendline, but I'm thinking they grind up to the downtrendline off the highs and eventually resolve this giant triangle to the upside.

I don't really trade the Russell, but check out the weekly TF.  If this consolidates along the highs and holds its uptrendline and breaks out, watch out upside in equities.  At the moment, though, it's a failed breakout, so time will tell, but it's worth noting.

I updated the VIX chart, using the index this time.  The vertical red lines are monthly expirations.  Eventually, there will be news driven price action that overrides this, but if it's working, it's working.

Draghi Day is Thurs Jan 22nd
Fed Day is Wed Jan 28th
Options expiration is Fri Jan 16th