Weekend Update: December 19, 2014
Anthony M. Cherniawski | Dec 21, 2014 02:40AM ET
-- VIX rose to a high of 25.20 on Wednesday, then retraced 67% of that rally.Partial retracements such as this are a warning that Volatility may continue to rise.The Cycles Model suggests a possible 4-week rally ahead.
SPX has 2nd best week in two years.
SPX had its second best weekly rally in 2 years after the worst week in 3 years. Itshows just how volatile SPX can be as it continues to make a top. Some may call this a double top at 2077.85, but it masks the issue that today’s top wasn’t a new high.Unless it exceeds the December 5 high on Monday, SPX now has the capability of making a new low. The Cycles Model calls for nearly a month of decline straight ahead if a new high isn’t made.
(ZeroHedge) What a week!!
WTIs best day in over a year
S&P 500 2nd best week in 2 years
Dow's best 3-day run in 3 years
USD at 8 year highs
The Dow rips over 800 points off its lows in 3 days, S&P over 100 near record highs.. before a weak close...
NDX rallies to its trendline.
NDX wasn’t quite as exuberant.The rally ended at the upper trendline of its Broadening Top formation. Whether NDX goes higher or not, this rally is labeled as “point 5b” in the Orthodox Broadening TopformationA decline beneath the October 15 low at 3700.23 completes the pattern and signals a major change in trend may be underway.Consumersare at the peak of confidence. They may get the 7-year itch.
(ZeroHedge) As Eric Hunsader rhetorically notes, "eMini Liquidity was cut in half starting Dec 12. Unknown why."
Actually "known" as we explained in "How The Market Is Like CYNK." The lower the liquidity, the easier to move a rigged "market" higher. If and when the time comes to pull the rug and for the selling to begin, the exchanges will simply break and report a marketwide "self-help" event, and no selling (or short-covering) will be allowed, period. For all those who will feel Cyprused or Corzined? You will be able to address your complaints to the former head of the Federal Reserve, now located in a warm, non-extradition country.
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High Yield rallies back above support.
The High Yield Index dropped below weekly Long-term support at 139.59 before rallying through all supports to make a 72% retracement. This is common in the topping process.The next move is likely to be a decline to or beneath mid-Cycle support at 127.50.Now is time topay attention to the Broadening Wedge formation as well.A decline beneath the lower trendline puts MUT in motion toward its first target near its Cycle Bottom at 102.64.
Financial Times has an in-depth article on the drama in the high yield corporate bond market.
(Money) In July, Federal Reserve Chief Janet Yellen warned of the “stretched” values of junk bonds. Few seemed to care, and among the unconcerned were millions of retirees who had reached for these bonds’ higher yields in order to maintain their lifestyle. Now, a reckoning may be at hand.Yellen’s mid-summer warning on asset prices was reminiscent of the former Fed chief Alan Greenspan’s “irrational exuberance” comment regarding stock prices in 1996. Few listened then, either. It turns out that the Greenspan warning was way early. But the dotcom collapse hit later with devastating results.
The Euro has reached the trendline.
The Euro came within 21 ticks to the Lip of the Cup with Handle formation at 122.00.The Euro appears to have reached its Master Cycle low today, but may still be attracted to the trendline for a final touch early next week before it bounces. Long-term trendlines often act as attractors that may produce a bounce when encountered.Either way, the Euro is ready to turn next week.
(Reuters) - European Central Bank officials are considering ways to ensure weak countries that stand to gain most from a fresh round of money printing bear more of the risk and cost.
Officials, who spoke on condition of anonymity, have told Reuters that the ECB could require central banks in countries such asGreece or Portugal to set aside extra money or provisions to cover potential losses from any bond-buying, reflecting the riskiness of their bonds.
Such a move could help persuade a reluctant Germany to back plans to buy state bonds.
Euro Stoxx bounces from mid-Cycle support.
The EuroStoxx 50 Index fell through the bottom trendline of its Broadening Wedge formation, then bounced back inside the formation after hitting mid-cycle support at 2935.95.Stoxx closed beneath both Intermediate-term resistance at 3144.86 and Long-term resistance at3155.79, putting it in jeopardy of losing those hard-fought gains next week.
(WSJ) European stocks ended Friday broadly mixed, with investors weighing the prospect of more monetary stimulus in Europe against the threat of political upheaval in Greece as well as the Russian currency crisis.
The Stoxx Europe 600—having already closed the previous session almost 3% higher on the day—ended the session about 0.4% higher, though the German DAX was down almost 0.3% and the French CAC 40 down around 0.2%.
After the gains seen Thursday some traders said that investors may have overshot, considering there are still several underlying sources of volatility.
The yen pulls back to its Cycle Bottom.
After a strong reversal last week, the Yen pulled back to the Weekly Cycle Bottom support at 83.94.Therally that follows may take XJY back to 110.00 or higher. It appears capable of extending its rally through mid-January. This means a major source of market liquidity is drying up.
(Reuters) - The yen fell on Friday amid expectations of further stimulus next year to bolster Japanese inflation and also on a revival of global risk sentiment after battered oil prices and Russia's roublestabilised.
The dollar gained 0.5 percent against Japan's currency to buy 119.40 yen, while the euro rose about 0.4 percent to 146.58 yen.
The Bank of Japan kept monetary policy unchanged at the end of its two-day meeting on Friday, as expected, and offered a more upbeat view on the economy, signalling that no immediate expansion of stimulus was on the horizon.
The Nikkei bounced from its Diagonal.
The Nikkei bounced from the lower trendline of its Ending Diagonal formation, nearly making a 70% retracement.It appears that the upper trendline of its Orthodox Broadening Top has provided stiff resistance, while the Diagonal trendline provides support. One of them has to give. The Broadening formations represent a market that is out of control and has a highly emotional public participation.Investors run to and fro on the slightest rumor.
(CustomsToday) Tokyo stocks climbed 2.39 percent on strong gains at Wall Street, whereas the dollar’s strength also provided support.
The Nikkei 225 index at the Tokyo Stock Exchange climbed 411.35 points to 17,621.40 on Friday, while the Topix index of all first-section shares rose 2.42 per cent, or 33.29 points, to 1,409.61.
Tokyo tracked a positive lead from Wall Street where the Dow soared 2.43 per cent and the S&P 500 shot up 2.40 per cent.
“Worries certainly remain – including those over weak oil prices and Russia’s economy,” Tatsunori Kawai, chief strategist at kabu.com Securities told Dow Jones Newswires.
“But the benefits of weak oil for developed economies outweigh the risks for developing and oil-dependent nations, and the net global effect is likely to be very good.”
U.S. Dollar came within ticks of its target price.
The US Dollar came within 26 ticks of its target price of 90.04 today.Friday is a double Cycle high, where both Primary and Trading Cycles reached a pivot point.A sharp retracement may follow early next week.
(USNews) A recurring headline of late has been the strength of the U.S. dollar. The currency markets are somewhat difficult to understand, especially if you don’t do much international travelling. The dollar has increased about 10 percent versus other currencies, including the euro. At the beginning of the year, 1 euro could be exchanged for about $1.38. Today, that same 1 euro can only be exchanged for $1.24. You might think that is not very meaningful. In fact, the currency exchange rate may seem somewhat irrelevant if it doesn’t impact your day-to-day routine. However, the implications of a strong dollar could have profound ripple effects.
USB reverses near its Cycle Top.
The Long Bond could not reach its Cycle Top at 150.65 before reversing on Wednesday.The ensuing declinemay take USB up to three months to complete.The potential target may be weekly Cycle Bottom support at 125.72.Do you think it could have been something that Janet Yellen said?
(WSJ) Treasury bonds strengthened on Friday as buyers stepped in following the biggest two-day selloff in more than a year.
In late-afternoon trading, the yield on the benchmark 10-year note was 2.178%, down from 2.204% a day earlier. When bond yields fall, their prices rise.
The stabilization of the bond market suggests buyers expect bond yields will stay low as an uncertain global growth outlook will continue to bolster demand for ultrasafe U.S. government debt.
“I don’t think the opinion of the entrenched buyers has changed much; they still believe rates will stay low for a long, long time,” said Thomas Roth, executive director in the U.S. government bond trading group at Mitsubishi UFJ Securities (USA) Inc. in New York.
Gold appears to be in a weak consolidation.
Gold closed above weekly Short-term support at 1194.20, but it may be running out of time to complete its retracement to its target at 1246.00. The Cycles Model does not have any important pivots until the end of the year before turning back down in an Intermediate Wave (3).Watch for any further breakdown since it may indicate Wave (3) has begun. Otherwise, the rally may resume next week. The Lip ofa Cup with Handle formationhas been modified to accommodate the new pattern.
(Bloomberg) Russia, the world’s fifth-biggest gold holder, added to its hoard for an eighth month even after having to use its international reserves on defending the ruble.
The gold stockpile rose to 38.2 million ounces as of Dec. 1 from 37.6 million ounces a month earlier, the central bank said today on its website. Its value in dollar terms fell by $85 million. Total reservesshrank by $9.7 billion in November to $418.9 billion, the lowest level since 2009.
“Physical volumes are increasing but their dollar value is not changing that much because the gold price has fallen,” Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow, said before the release. “Many central banks are buying gold since the price for gold has fallen.”
Crude slides even more.
Crude exceeded an intermediate-term and long-term target that was given to subscribers. Minor Wave 5 is still incomplete but Crude made the bounce that I called for last week. WTIC has already exceeded the Cup with Handle target illustrated on the chart. It appears that it may not stop declining at 50.00. $43.00 oil, anyone?
(ZeroHedge) Crude is over 7% off its intraday highs.. But "Ignore it" - Yellen said it's great news (and transitory)... The last time Crude was here, the S&P 500 was 65 points lower...[WTI closed at its lows $54.05 in Jan '15 futures]
January 2015 WTI Futures $54.35...
China stocks making big swings.
The Shanghai Index made a 7.8% swing from low to high as it closed higher this week. Today is a Trading Cycle Pivot day, so we will be looking for a potential reversal on Monday.The parabola may completely unwind in the next four weeks.
(ZeroHedge) Earlier this evening China's State Administration of Foreign Exchange's (SAFE) Wang Yungui noted "the impact of the Russian Ruble depreciation was unclear yet, and, as Bloomberg reported, "SAFE is closely watching Ruble's depreciation and encouraging companies to hedge Ruble risks." His comments also echoed the ongoing FX reform agenda aimed at increasing Yuan flexibility which The South China Morning Post then hinted in a story entitled "Russia may seek China help to deal with crisis," which noted that Russia could fall back on its 150 billion yuan ($24 billion) currency swap agreement with China if the ruble continues to plunge, that was signed in October. Furthermore, two bankers close to the PBOC reportedly said the swap-line was meant to reduce the role of the US dollar if China and Russia need to help each other overcome a liquidity squeeze.
The Banking Index bounces off Long-term support.
--BKX bounced off Long-term support at 70.75 to close again near its highs.This action shows heightened volatility as banks are scrutinized for exposure to the oil patch.BKX now must decline beneath the lower trendline of its Orthodox Broadening Top at 64.00 to complete point 6 of the formation.
(ZeroHedge) Everyone thought that any major monetary policy surprises and/or capital controls today would come from Putin during his annual press conference. Boy were they wrong: just after 2 am Eastern, none other than the Swiss National Bank joined the ranks of the ECB in scrambling to stem the wave of capital flight, not to mention the cost of money, when it announced it too would start charging customers for the privilege of holding cash in its banks, when it revealed a negative, -0.25% interest rate on sight deposits: a step which according to the SNB was critical in maintaining the 1.20 EURCHF floor.
(Bloomberg) Banks added to their wins in Washington this month by getting a reprieve from the Volcker Rule that will let them hold onto billions of dollars in private-equity and hedge-fund investments for at least two more years.
The Federal Reserve granted the delay yesterday after banks said selling the stakes quickly might force them to accept discount prices. Goldman Sachs Group Inc. has $11.4 billion in private-equity funds,hedge funds and similar investments, while Morgan Stanley has $5 billion, securities filings show.
“This is a great holiday present by the Fed,” said Ernest Patrikis, a former Federal Reserve Bank of New York general counsel who is now a partner at White & Case LLP.
(BusinessInsider) Evgeny Gavrilenkov, the chief economist at the investment banking arm of Russia's largest lender Sberbank CIB, has warned that actions taken by the Russian authorities to bail out Russia's troubled banking sector could cause a "full-scale banking crisis".
"If the Central Bank of Russia continues to provide refinancing in exchange for non-marketable securities that banks can generate in almost unlimited amounts, the system will gradually ramp up to full-scale banking crisis," Gavrilenkov said.
(ZeroHedge) While today's rabid explosion in the S&P 500, coupled with a literal break in the NY Fed/Citadel market boosting algowhich went haywire in the last moments of trading and pushed the S&P up to 2130 in milliseconds via Kevin Henry's preferred SPDR S&P 500 (ARCA:SPY) ETF, may be the stuff of market manipulating legends, nothing compares to the far more berserk situation China finds itself in, where a 50% surge in the Shanghai Composite over the past few months - not on improving fundamentals but just the opposite, hopes of massive liquidity injections to halt China's economic hard landing - has found the PBOC scrambling to find a way to, politely, burst the stock market bubble without causing too much pain.
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