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.