Some charts

Just keeping it simple...

In order of market influence, starting with XLF

Market Observations - Problems or not?

[update 2:50 pm] After I made this post this morning, daneric posted this rather excellent depiction of the breakdown retest on friday. The RUT has a similar chart as well...but this is an excellent chart and the count i agree with also. This also reinforces the bearish patterns in the financials. I recommend looking at as many financials as possible - the charts are quite revealing. Please visit his blog at: danericselliottwaves.blogspot.com)

To me the market is setup for a fall...something like gap down Tuesday and range day to close at the lows. But lets looks at the risks to this potential:

1. Gold
2. Dollar
3. Bonds
4. Breadth
5. Symmetry
6. Inverse ETF's have not broken downtrends

Lets look at the positives for this potential:

1. Seasonality
2. Market Structure
3. Volume Patterns
4. Weak Financials
5. Oil
6. Commodities

Discussion

Gold is in position for a consolidation which is at least supportive of stockmarket retracement. However, if gold were to continue its aggressive move up, that could reinforce selling in the dollar which would likely hold the market up to some degree if not spawn a proper rally.

Bonds, if labelled as an impulse wave would need to complete 5 down which would indicate at least anecdotally that stocks should rally. If that labeling is incorrect then the structure should break to the upside NOW which would indicate a more than likely significant fall in stock price.

Breadth, according to elliottwave was a little higher on friday than they would have liked. Friday was a pre holiday trading day, easily manipulated and possibly effected by the low volume calculation of the indicator. I believe that as long as breadth was not overwhelmingly strong the day is likely to be an anomaly. And that did turn out to be the case.

Nasdaq, SP, Russell and Dow all came back to test breakdown points and for convenience closed right at them. This makes it rather simple from a symmetry standpoint...if we gap up and over those levels then the short is most likely off...if we can not get above them then the short is likely on and P3 down is probably started.

Inverse ETF's have not broken downtrends. This is a big issue. They were rejected at the down trend line. This needs to be broken pronto...or they will go lower. We got some pretty sizable up volume recently and the decline has occurred on substantially less volume - so its not that negative yet.

Seasonality, is biased towards the downside with larger investors back from vacation and likely with an itchy trigger finger. Additionally, market direction changes love to occur on three day weekends.

Counter trend move off lows of march can be counted complete and retest of bearish ending diagonal setup nicely to be a kiss good bye for the market.

Recently, down volume has been increasing and up volume has been decreasing. 2 Distribution days in the last week or so...one or two more could put a nail in the coffin.

Financials, set up a very bearish pattern this week and could not find buyers out of the selloff. In fact, individual charts like C, BAC, GE, JPM did not setup bullish candles on Friday. In fact, they look much worse than the XLF.

 

Oil continues to sell down regardless of if the dollar is doing so or not.

DBC is coming off a very nice double top and has done nothing to break its down trend. I do not see how the market can sustain a rally when commodities can not catch a bid even if the dollar is weak.

VIX

The VIX index broke nicely out of its falling wedge...and then rather interestingly fell right back into it. This is a mixed event for me. We could (as i expect) pop right back over it on the open on Tuesday or perhaps we need another test of the lower trend line which ironically would fit nicely with further dollar weakness, Gold strength and market strength.

Deadcat Bounce continues as expected - Financials Weak

Low volume deadcat bounce continues...XLF which has been leading the market up failed to generate an OBV new high and has registered the beginning of a bearish candle pattern along with bearish volume tracks. Theoretically, financials should be stronger here than the market, however, clearly money has been flowing out of financials on this last rise. If financials go - then so market goes in my opinion.

• Falling Three Methods: A bearish continuation pattern. A long black (red) body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new low.

Job Losses in perspective

For some perspective:

Today, the Labor Department reported that nonfarm payrolls (jobs) decreased by 216,000 in August. Today's chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1950-2006 (dashed blue line). As today's chart illustrates, the current job market has suffered losses that are more than six times as much as average (20 months after the beginning of a recession). In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase five months ago.

Did you know the FHA Numbers?

"The FHA's aggressive lending programs have continued throughout the housing downturn, causing its market share of the mortgage industry to grow from 2% in 2005 to 23% today"

Now that's ridiculous... not to mention clearly manipulated behavior on the part of likely the Fed, FHA and probably Barney Frank.

These guys are trying to fix prices...by creating one huge margin call. When will the insanity stop?

Market Observations...Dead Cat Bounce?

I know, I know...it looks like there could be a rally...it looks like there could be a sell-off. Lets take a look at the SP500.

Divergence everywhere, RSI, MACD, MACD Histogram and Volume. OBV did not diverge on the last high but certainly will on any rally here. Tomorrow is a critical day, volume has to pick up for there to be any juice left for the market. I think that the 1003 to 1016 area are going to be formidable resistances for the SP500.

The TSX is looking more bullish than the SP500. Please note the lines on this chart. Red lines indicate TSX non-confirmations of the SP500. Blue lines are confirmations. This has commonly occurred at significant tops and bottoms only. We have just gotten one - the SPX hit a new high and the TSX did not. However, TSX does, as a result of its significant exposure to mining stocks, look much better than the SP500. If it breaks out here with Gold, will it create another non-confirmation - TSX making new high and SP500 not making a new high?

I lean to dead cat bounce with non-confirmation by TSX. But if the SP500 breaks 1016 then all bets are off. Ideally, stocks pop a little bit here and make a wave 5 down to complete our impulse.

Gold Rallies, Silver Rallies, Stocks Rally and the Dollar Rallies

I have been sick today...so, I have not posted. I will post some charts later. However, I did want to get this out.

Well, that is an interesting setup. As I have discussed in previous posts I expect the dollar to be stable relative to rallies in inflation assets. That does not mean that the dollar will not go down. But does mean that it will show relative strength...and that this Gold and Silver trade is NOT an inflation (hyper-inflation according to Peter Schiff) trade.

Strength in the dollar definitely confirms that this is not a market to rely on for long trades. Sit on hands would definitely be more profitable than getting trapped. Ideally, I would like to see the market move up more to truly convince the inflation camp - that means that anything under 1039 is fine with me. But what I anticipate is that the market makes a move up to the 1015 area and gold make its sharp jump - and then both fall out of bed.

In the chart below, you can see the wave count and the proper channel for the dollar. Just in case you are wondering, the "End of Bear Trend" indicator is automatic not manual. Its based on some of my recent programming work. The interesting thing is that this indication usually only presents itself prior to or in wave 5. Twice is much better than once - with support at 77.84. If we were make another low that would be allowable and a huge buying opportunity based on this indicator alone.

Be forewarned, the dollar's strength will bely any strength in inflation assets. The trap is set.

So, its all getting very interesting...

The inflationists are getting confused because the trade they have been planning for years is finally looking like its partially coming to pass. Stocks have gone up and gold and silver are rallying while we have a weak dollar. Problem is the dollar is not that weak and even if inflation assets such as gold and silver can rally a little bit...i think its rather ironic that its taking the same course that it has in the past.

This is rather ideal actually, since the fear trade is clearly what is occuring...but inflationists will grasp at any potential outlook that promotes the inflation thesis. Interestingly, the market selling off, gold rallying, Oil in a downtrend, CRB in a downtrend and the dollar essentially relatively stable is not inflationary action in my opinion.

As we can see in the charts below, in 2007 gold tended to move with the market until after the first crash and recovery. The fear of in the market at that time was never far away. So, almost to the day the SP500 failed to confirm its highs gold broke out and continued as a fear trade (with a little inflation talk through in). The reality is that if we are looking for inflation stocks should participate as well since they represent assets that should increase in relative value to the dollar.

Gold has a 72 day cycle which coincidentally comes due on Sept 10. I have in previous posts mentioned that the time projections for the completion of this countertrend rally were optimally occurring on September 11.  (666 and Sept 11 interesting if that were to happen)  Gold projects to 1050 to 1080 and could make a quick jaunt up there...I would expect some weakness similar to what we had in the dollar today and perhaps a move down to complete an ending diagonal. I would expect the market to bounce but not make new highs. And I expect that the Fear trade will be overcome by inflationists needing to sell when the realize they have been most likely hoodwinked by the Gold and Silver trading pattern and the contradictory movements in the stock market. All of which  scream - DEFLATION is coming.

So, the trap is set...now the beast has to fall for it.

see also: Issues arguing against the top of Primary Wave 2 here

chart courtesy of Mattew Fraily at http://breakpointtrades.com 

Gold and Silver - the Fear Trade is taking off

Gold and Silver are curious beasts...If we look at their behavior in the past we can see some interesting dynamics. Firstly, they tend to be stable when the markets start pulling back from a bullish run. Then, as that run accelerates to the downside for equities - people become emotional but as Gold and Silver are not rising they do not chase them. However, when the equity market recovers people have a fresh crash in their mind...so, the first few days that the market pulls back off its recovery - people trying to avoid new losses in Equities flock to the safety trade - Gold and Silver. After a time, that safety trade falls apart as pressure builds Gold and Silver need to be liquidated to raise cash.

So, my interpretation is that this is not the Inflation Trade that I was worried about (see: Issues arguing against the top of Primary Wave 2 here), but rather the fear trade. I think we are likely to see Gold, Silver rallying and the Dollar stable/consolidateive/rallying near-term if that is the case.


I will post charts later...in any case, the Triangle for Gold looks like the best analysis pattern. If 981 breaks 1085 is a reasonable target. Daneric had a very good analysis of the gold setup on his blog...please check it http://danericselliottwaves.blogspot.com/.

The EURO - starting a trip to oblivion

The EURO was a nice idea and I have to admit those central bankers did a good job. By implementing the EURO, they unified the constitutions throughout the EURO countries, theoretically simplified and centralized policy making and created a unified approach to managing the economic decision making of member nations. Theoretically, this is all good. But is it really?

In this article I will examine that question. In my estimation the motivations for the creation of the EURO are at best dubious. What's more though the intentions seem good on the surface - the long-term goals are definitely not. 


A global currency has been the panacea for the world banking system...and the fantasy of every ponzi scheme banker in the world. The benefits of a unified currency throughout a EURO consortium are obvious...

If your goal were to have absolute discretion regarding a fiat currency's exchange value for real assets...a unified currency eliminates a lot of headaches and that is the clear objective of the EURO. We have to start somewhere.

And if the long-term adgenda in EURO could succeed then that agenda could move on to unifying other currencies under its umbrella. The end result could be a harmonization of the most dominant currencies in the world - with absolute control by central banks of that currencies exchange value as they see fit. 


What is interesting is that the Fed has demonstrated that it can not manage prices yet the entire object of a unified currency is to manage prices and create an optimal instrument for debt pushers. The goal of the EURO experiment is to expand on and continue the policies of fiat currency that have been perfected in the United States since JP Morgan and his buddies blackmailed politicians and forced a holiday vote to wrestle control of OUR currency into private bankers hands...but now to apply them in a much larger scheme. 

Unified currencies eliminate huge problems and since relative values are hallmarks of a free market...currency consolidation is a socialist exercise and likely to result in the same result as most socialist exercises...failure.

The EURO attempts to assign arbitrary values on relative value balance sheet contributions of member nations to facilitate a real exchange of value...this would be even the slightest interesting if the word value entered into the equation at all in reality. The reality is that the EURO suffers from the same disease that the dollar does...dilution through credit. 


The EURO is another currency that represents debt not value. In the past the EURO represented less debt on a relative basis than the Dollar. However, over the last years that has changed dramatically due to coordinated efforts by central banks (debt pushers) to foster more and more debt exchange as a mechanism for transfer of value. Each member country of the EURO has different assets, obligations, reserves and GDP contributions, not to mention political, social and governmental stability,with which to participate in the consortium and contribute to the currencies aggregate stability and perceived value. 

First, we must realize that people's views that cooperation, unification and homogenization - i.e: socialization - is a bull market phenomenon. During times of wealth expansion, optimism reigns - reflecting power to impart social determination over individual choices. What's more bull market optimism makes people think it will work - this time - because this time its different. Cooperation among nations is a bull market phenomenon. Of course, when everyone is making money and in expansion mode they will cooperate and feel powerful enough to be able control their own destiny under nearly any circumstance. 


Russia, the US, Germany, England are great examples of what happens then everyone is making money and expanding - they want to collaborate and cooperate. All of these countries have at different times have been enemies when the perceptions were not so optimistic when social mood was negative and cooperation or collaboration would not increase wealth.

So, where are we heading? Well, Germany is offering to pay people 66% of their salaries for not working, England is offering all sorts of misguided plans, Spain, Yugoslavia are issuing EURO bonds like they are candy even though they are not credit worthy...and in general, all these countries are offering vastly different fundamentals to contribute the currencies stability, viability and perceived value. 


Make not bones about it for example, Spain is a wreck. With a 25% unemployment rate and ridiculous amounts of debt obligations of its government and citizens...how is Spain going to sustain a balance with Germany which has much less of both a debt and unemployment? Germany is a much bigger contributor to the EURO's value and will not be happy to accept responsibility for Spain's deflationary spiral - neither will any other member who is in better shape that the failing members. Already, Germans are keeping track of German issued EURO's and are in increasing frequency asking to be paid in German Euros rather than French ones or Spanish ones...and what about Greece?


What about bank failures? A bank failure in Spain is much more likely than in Germany but all Euro nations would be adversely effected much differently than if they were independent nations operating in a free market. 


I am quite confident that this is not a good trend. Optimism will fade as deflation accelerates and the depression wears on. And since the predominant issue of debt and derivative is US Dollars - the EURO has another Achilles Heel - relative value collapse versus the Dollar. If we add dissension, instability and default among member nations to the picture - the EURO's relative value to the dollar sets it up for an intense nose dive. 


Now, if you want to understand more about what to expect from the dollar then please read: More dollar what-if discussion, crash warning and recommendations,  The Future of the Dollar - the biggest short squeeze. 


The main thing to understand is that the primary method of exchange of debt and leverage is US dollars. If that is the case, and everyone needs to get dollars to settle obligations, transfer credits/debits and close transactions...the value of the Dollar will rise against almost every other currency that is not absolutely stable - the stable currencies are the Swiss Franc, Singapore Dollar or New Zealand Dollar. 


There is no way that almost any country can isolate itself from global deflation. Diversifying single nations into one unified amalgamation only exacerbates the problem by infusing more dissension, instability and risk to an already risky situation. 


So, what will happen? Countries will pullout of the EURO, conflict will surely be a risk as a result of that type of confrontation. This will cause further erosion to the EURO...However, countries like Germany should have their own currency. Why did they need the Euro anyway? The Euro was not a boon for business and trade despite the marketing and promotion that it got.


I am also quite sure that leader nations will not be happy to suffer from debilitating problems of their weaker members. I certainly would not and it would be unreasonable to expect that they would either. Remember cooperation is a bull market phenomenon and this is NOT a bull market. The results will be most likely a dissolution of the EURO as a debt based currency and ultimately the demand for a replacement currency that represents value and not debt. 


So, there it is, my first post introducing what to expect from the EURO. I will be following up with a lot more research and information as time permits. Especially some charts and technical analysis.


As, Americans, we should try to help Ron Paul to restore our constitution and free markets so that we can set an example to the rest of the world rather than the potential alternative - which i rather not think about right now.

VIX Breaks out

New articles I am working on - Euro Going away and JP Morgan the biggest bailout and fraud of them all

I just wanted to let you know...things are starting to heat up now and I will be rushing to get these out. EURO will not likely exist as a currency in a few years and JP Morgan will be the shoe drop event for the market.

Dollar Breaks out

This is most likely the worst case scenario playing out if the dollar continues to rally...


please see: More dollar what-if discussion, crash warning and recommendations 

Dollar is not confirming market move

Dollar has remained solidly above support even while the market squeezes the shorts. The dollar is holding strongly to that magenta up trend line. And gold is getting close to pushing into the apex of the triangle too far for a successful breakout.

Market Observations

Without doing an analysis of volume...the price patterns for the SPX have completed a break of a previous swing low. Looks like we are in wave 4 of what under my view should become 5 waves down from the high. If we DO get 5 waves down this will confirm a change of direction for the market as a new impulsive wave.

What I would like to see is more of a retest of the the broken trend line as an a-b-c bounce for wave 4 and then wave 5 down to complete wave 1. If that is not the case, which I am prepared for the incongruence between the Gold, Silver, Oil and Dollar markets will tell us what will happen. If the Dollar fails to break out then its up to a new high - most likely with Gold and Silver tagging along. However, the VIX is stalking its down trend line...and may break out if we do get a wave 5 down to this impulse for wave 1.

A break of the lower trend line confirms Primary wave 3 is in progress...though I think we should be able to tell before then.

I will make more comments later...but some steady progress today.

Defining elements to watch for tomorrow's trading

The only thing that we need to watch to understand whether the inflation trade will make an attempt is the Dollar. If the dollar breaks out of this diagonal...the its decline is over. Gold will roll over and the market in my opinion will be in a confirmed bear market move that will make wave 1 down looks mild. Clearly tomorrow is an important day.

Even though the Gold chart has a nice triangle which I am not going to focus on in this post...Gold could breakout and fail after a few days. However, if the dollar rallies, the 5 waves down will be confirmed...which is a much stronger pattern than a triangle. Therefore, 78.60 on the DXU09 contract is the key level. For the DXY index its around 78.53. If we take out those levels decisively,  considerations for hindenburg omens, inflation trades and the potential Gold breakout will be minor impacts on the overall trend in the markets which will be deflationary.

Dollar breakout =  next leg of deflation and the playing out of the Dollar Short Squeeze that I have been describing in my previous posts.