SPX Closes In On Upper Trend Line; Crude Tests Its Support
Anthony M. Cherniawski | Jun 09, 2014 01:54AM ET
VIX is making what is called a throw-under low, challenging the closing low made in January 2007.The final descent was particularly sharp in the past two days, suggesting an invisible hand at work.
h3 /h3 h3 SPX closes in the Upper Trend Line/h3SPX is making new highs as it closes the gap between it and its Ending Diagonal trendline and weeklyCycle Top resistance at 1975.62. There is no assurance that it will make its target.The combination of all-time highs and extreme VIX lows may be a ticking time bomb.
ZeroHedge : For 5 years the correlation between the expansion of the Federal Reserve's balance sheet and the growth of the S&P 500 has risen dramatically. Since QE3 was unveiled, the correlation is converging on 1 which of course is just happy coincidence and nothing to do with the free and easy flow of liquidity that month after month of Fed largesse has created. The problem is we now know that the hurdles to a Fed un-Taper are very high and so we can extrapolate the end-point for the Fed's balance sheet and where stocks would trade at that point. The S&P 500's recent exuberance has priced in the total expansion of the Fed's balance sheet to the end of the taper, so how much more upside is there?
h3 NDX reaches Cycle Top resistance/h3NDX made the final run at its Cycle Top resistance at 3802.46.There is no assurance that the rally will continue, since today may have been a Trading cycle high, indicating a decline is soon to follow.It appears to have completed point 5 of its Orthodox Broadening Top formation, which now suggests a decline beneath its lower trendline.
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ZeroHedge : We recently noted that the average Russell 2000 stock is down over 22% and the majority of the broad equity market is well into correction territory as the rally is supported by fewer and fewer names (cough AAPL cough). However, as FBN's JC O'Hara notes, looking at the percent of stocks above their 200 day moving average in the S&P 500 vs the percent of stocks above their 200 day moving average for the Russell 2000, we find the spread is at its widest point in the history of our database. While we find breadth is not a proper market timing tool, a heightened reading often forewarned of troubles ahead. It was more common to alleviate a wide spread by the S&P pulling back to the Russell rather than the Russell playing catch up.
h3 /h3 h3 The Euro closed above Long-term Support/h3The Euro declined beneath Long-term support at 136.37, but recovered at the end of the week.Once support is lost, however, it seldom holds the next time.EndingDiagonals are usually fully retraced, so we may expect a minimal decline to 127.47, with a high probability of testing its weekly Cycle Bottom at 123.30.
WSJ : The European Central Bank went to town this week in an effort to head off the threat of dangerously low inflation. But the market reaction to its package of monetary easing measures suggest the ECB will have a tough time denting the persistently strong euro—a key contributor to sluggish price growth in the euro zone.
The euro dipped only briefly after the ECB unveiled its new policies, before rebounding hard. It is currently trading just above its level before the ECB meeting at $1.3665 to the dollar, albeit well below the high of almost $1.40 before the central bank last month hinted further easing was on the way.
h3 DJ Euro Stoxx 50 goes for the Cycle Top/h3The EuroStoxx 50 index appears to be challenging its Cycle Top at 3344.08.The outburst toward new highs may have been based on the premise that lower interest rates at the bank may shift more money into equities.
ContraCorner : Taken at face value yesterday’s action by the ECB amounted to a monetary farce. How could any adult believe that a benchmark rate cut of 10 bps from an already microscopic level of 25 bps would move the needle in an economic zone that is already groaning under of the weight of $60 trillion in public and private credit market debt?
Similarly, what exactly is the point of negative rates on excess bank funds deposited at the ECB when there will never be any takers? After all, Euro banks do have alternative parking lots for idle cash. Likewise, how does inventing a grand new acronym called TLTRO hide the fact that its essentially a free toaster program for clever loan book managers? As instructed by this swell new ECB writ, they will presently shuffle some funds out of mortgages, sovereign debt or other speculative purposes yet to be defined and into approved “productive” loans. And then they will pass “go”, collect some cheap TLTRO funding from the ECB and collect their own performance bonus for all the bother.
The Yen declined beneath Long-term resistance
The Yen declined beneath Intermediate-term support at 97.87as the Euro and the Dollar bounced. Often a sideways consolidation, which is a coiling action that often results in a continuation of the move preceding it, but not without an occasional false break. Should traders start to view the Yen as a safe haven during political and economic turmoil, the money flow may reverse course and move from stocks to currencies such as the Yen.
Reuters : The yen leveled off on Friday but still looked set to rack up its best gains for months after a jumbled week of currency moves that has broadly seen the dollar strengthen and the euro and sterling fall.
Attention is now firmly focused on next week's European Central Bank policy meeting, expected to deliver more policy easing. It comes at a time when the conviction of many that the Bank of Japan would do similarly this summer has been shaken, underpinning the rise for the yen to three-month highs against the euro.
h3 The Nikkei emerges above its resistance levels/h3The Nikkei broke above weekly Long-term resistance at14719.52, nearly making a 50% retracement of its decline at the beginning of the year.However, this may be a false breakout prior to resuming its decline. Sideways consolidations such as this are usually continuation patterns. The longevity of the right shoulder introduces the Cup with Handle formation that is not exclusive of the Head & Shoulders pattern.
ZeroHedge : As if this morning's Draghi moves were not enough to show that there are no markets - just manipulated prices from central planners - Japan's Shinzo Abe just dropped another 'random US session' tape bomb:
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*JAPAN’S ABE ASKS PENSION FUND TO RAISE STOCK INVESTMENT: NIKKEI
The USD/JPY and the Nikkei 225 futures are popping in this news - which is not so much news as he has been pushing for this risk-seeking behavior from the nation's pension fund for months. His efforts this time are for health and welfare minister Tamura to announce the move in September (before the original year-end deadline).
h3 US Dollar challenges mid-Cycle resistance/h3After breaking its weekly Long-term resistance at 80.51, the US Dollar continued higher to challenge its weekly mid-cycle resistance at 81.09. This completes its first impulsive wave off the bottom and allows for a consolidation possibly to weekly Short-term support at 80.03 or the upper trendline of its Ending Diagonal formation.A breakout above mid-Cycle resistance at 81.09 cyclically confirms a probable new uptrend.
Reuters : Speculators lifted bullish bets on the U.S. dollar in the latest week to their highest in three months,according to data from the Commodity Futures Trading Commissionreleased on Friday.
The value of the dollar's net long position was $11.39billion in the week ended June 3, from $7.44 billion theprevious week.This week's long dollar position was the highest since theweek of March 4. Speculators have been net long dollars for afourth consecutive week, data show.
To be long a currency is a view it will rise, while beingshort is a bet its value will decline.
h3Treasuries making a reversal after clearing out short sellers/h3
The Long Bond made a strong reversal this week after making a near-38.2% retracement and declined tochallenge weekly Short-term support at 135.44. The challenge suggests that the support may not hold and the decline may resume as early as next week.USB now has a date with a major Cycle bottom by the end of June.The extended rally was made possible by the large short positions that had to cover as the long Bond rose against them.
ZeroHedge : We have shown the surge in short positioning that CFTC exposes via its Commitment of Traders data that has begun to see some covering; but despite Citi's protestation that the recent rally in bonds 'must' have cleared out the short base and squared positions, the truth is - the Treasury market is dominated by more than just futures and institutional clients have not been this short Treasuries since 2006. As JPMorgan's Client Survey exposes, as of the end of last week, active clients were adding to shorts... which could be a problem as the last time all clients were this net short, bond yields collapsed in the next few months...
h3 Gold bounces, but not very far/h3After Goldcollapsed last week I warned of a quick bounce.Instead of a bounce, gold merely left a smudge on the weekly chart. The weakness of the bounce this week is not good, since gold is due to resume its decline early next week.
given the probe into commodity-financing deals and the rehypothecation evaporation ; these gold bars were shipped to a Chinese warehouse before Zhao was able to confirm the fraud.
h3 Crude is testing its supports/h3Crude tested Intermediate-term support at 101.78 before drifting higher at the close of the week. Often a probe through support indicated that it may give way on the next sell-off.This may be indicative of a potential decline over the next couple of weeks.
MarketWatch : Oil futures settled little changed Wednesday, losing hold of the $103-a-barrel level they saw during the session as traders assessed a U.S. government report showing a bigger-than-expected weekly decline in crude supplies, along with rising gasoline and distillate stockpiles.
July crude CLN4 +0.27% shed 2 cents to settle at $102.64 a barrel on the New York Mercantile Exchange. Prices, which were trading at around $103.50 before the supply data, had climbed more to touch highs closer to $103.59 immediately after the data release but gave up those gains by the close.
h3 China eases down toward trendline support/h3The Shanghai Index eased down from Intermediate-term resistance at 2053.74, closing beneath Model support lines. It may now resume its descenttoward the neckline of its Head & Shoulders formation. This will now allow the Primary Cycleto continue by declining through the Head & Shoulders neckline. There is no support beneath its Cycle Bottom at 1927.73.
ZeroHedge : While we have warned about the problem with near-infinitely rehypothecated physical/funding commodities/metals, be they gold or copper, many times in the past, and most recently here, it was only yesterday that China finally admitted it has a major problem involving not just the commodities participating in funding deals - in this case copper and aluminum - but specifically their infinite rehypothecation, which usually results in the actual underlying metal mysteriously "disappearing", as in it never was there to begin with.
And disappearing commodities is exactly what we reported yesterday the third largest Chinese port of Qingdao is being investigated for after a source at a local warehouse said that "it appears there is a discrepancy in metal that should be there and metal that is actually there... We hear the discrepancy is 80,000 tonnes of aluminium and 20,000 tonnes of copper, but we hear that the volumes will actually be higher. It's either missing or it was never there - there have been triple issuing of documentation."
h3 The Banking Index bounce stops at Intermediate-term resistance/h3BKX has bounced aboveIntermediate-term resistance at 69.37, completing a 62.5% retracement of its decline in March. Considering the new highs being made by the SPX and Dow Jones Industrials, this lesser high is a glaring non-confirmation of those new highs. A further decline from here may complete its Orthodox Broadening Top formation by breaking the bottom trendline. The next target is below its Orthodox Broadening formation near 62.50.
ZeroHedge : While we have warned about the problem with near-infinitely rehypothecated physical/funding commodities/metals, be they gold or copper, many times in the past, and most recently here, it was only this week that China finally admitted it has a major problem involving not just the commodities participating in funding deals - in this case copper and aluminum - but specifically their infinite rehypothecation, which usually results in the actual underlying metal mysteriously "disappearing", as in it never was there to begin with. It would appear our fears of global contagion (through various transmission channels) are now coming true as WSJ reports that as many as a half-dozen banks are trying to determine whether the collateral for loans they made to commodities traders was used fraudulently by a third party to obtain other loans.
ZeroHedge : US Banks enjoyed more or less steadily climbing, or rather soaring, deposits by Russian institutions and individuals, having tripled in just two years to $21.6 billion by February, according to the US Treasury.
It may seem a bit counterintuitive that in times of ZIRPanyone would put any money in any US banks, and it may seem even more counterintuitive that Russians who have other opportunities with their money would voluntarily subject themselves to the Fed’s financial repression.
But from the Russian point of view, earning near-zero interest on their deposits in the US and losing money slowly to inflation must have seemed preferable to what they thought might happen to their money in Mother Russia. Money that isn’t nailed down has been fleeing Russia for years, even if it ends up in places like Cyprus where much of it sank into the cesspool of corruption that were the Cypriot banks, which finally collapsed and took that Russian money down with them. By comparison, the US must have seemed like a decent place to stash some liquid billions.
ZeroHedge : While we are led to understand that the US economy contracting at a pace not seen in three years was blamed on the snow (which somehow subtracted $100 billion in US economic growth for Q1 from early estimates of over 2.5% Q1 GDP estimates), we are not sure if one can also accuse snow for what the Mexican central bank just announced, when in a seemingly shocking announcement, it reported that it cut rates from 3.50% to 3.00%, a move expected by precisely zero economists out of the 20 polled by Bloomberg.
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