Over night the dollar broke the 76.40 trendline...and took out stops in the low volume overnight session for the DX contract. The prices popped there to 81.00 on 3,000 contracts. If this was a hedge or speculative position...the net effect was an $11,000,000 hit on those contracts from overnight lows. Please look at these trades to see how you can get killed in overnight stop hunting. DX is not a very liquid contract and can not absorb a 3,000 contract order.
In any case, the market is not down on european banks as is being spread in the press. The market is down on relative value dollar issues. We may be setting up a leading diagonal for a downside break. This was my assumption yesterday and continues to be a preferred view today.
Buffett's, hair-brained purchase of Burlington Northern is an example of the Buffett credit inflation thesis. Please read my Buffett pieces on the featured article list. Credit inflation is dead...buying transports now is absolutely devastating. Buffett does not understand the financial system and thinks his buddies at the Fed and Treasury will provide enough cushion. The reality is they are not in control. This buy of Burlington may provide some lingering strength for the Equity markets...which will, no doubt, be a great bearish opportunity.
I saw Cramer last night, he has officially lost his mind and should be fired immediately. He is championing good news. Good news comes at a top...he should know that already. CNBS is continuing in their quest to reduce their view ship to Zero.
As long as the dollar is strong...sell rallies IMO.
This reflects the same chart as DXY potential for a small bounce in the markets and a dollar pullback to 75.90 or so. The HS pattern looks better on the UUP even than the DXY directly which is why I wanted to show this chart.
Every where I see people looking for a market bounce, while evidence may support a very small one, keep in mind that the dollar did not even take out Thursday's high on Friday while equities got pummeled. From what I see, a pullback in the dollar has maximum potential of around 75.90. That is the dashed support line on the chart below. If the dollar were to take out that level, it would likely be taking out swing lows from the left shoulder and that would be a SIGNIFICANT compromise to the technical picture.
What seems most likely to me is that the dollar makes a small pullback above this support and then breaks out or simply gaps up over resistance at the thick green line. This of course would likely support a market that would cascade lower to the 1016 to 1020 area at least, probably more prior to a good bounce. If we look at the downside risk for the dollar its so minimal that any market rally would have to be rather restrained at best. Again, if the dollar were to take out 75.90 then something else would be playing out.
The thick green trend line immediately above for the dollar is a significant resistance, but the pattern is strong and looks like it is demanding follow through and then consolidation. A breakout of this trend line will cause an avalanche of dollar shorts to cover... potentially in explosive fashion.
Looking at past action in the dollar, pullbacks during the first short squeeze higher are extremely small and more likely gap ups. I will post some examples shortly.
The Apple earnings reactions are demonstrated by the vertical lines on the chart below. Looks like the Apple phenomenon has played out again...surprise surprise. This is a chart is an updated chart of a recent chart of Apple I put out before they reported.
The dollar is poised and ready...just below key resistance. Ironically, most are looking for a bounce...if the dollar does breakout...then we will need to be looking for a cascade lower. So far, the dollar has guided me very well through this current pattern. Right now, I favor a small bounce followed by a dollar breakout and an equities cascade lower. What this means is that immediate resistance may provide a convenient point for some dollar selling or consolidation...and we can not underestimate how minimal that may be. Once this resistance is broken the effect will be a strong rally for the dollar and heavy selling of inflation assets. SP 500 targets for me on this move will be 970 area with a hesitation at the 1016-1020 area.
EURO divergence has been and will likely continue to be a great trigger for trading and has revealed the dollar and market patterns prior to them occurring - sometimes by as much as 30 minutes. It is currnetly my primary trade setup vehicle. If there is no divergence between the EURO and the SP500 I do NOT do a trade.
The fractional reserve system is dead...and the impact of that will be an exploding dollar. Which is why we have to worry about the impending breakout on the dollar chart. To understand more about this subject please read the feature articles posted on the upper right on this blog.
Below is an unchanged old chart of the SP500 that I posted over the last few weeks.
Below is a very good chart from Matt Fraily for the UUP.
Below is an unchanged old chart of IWM that I posted on the 21st of September.
Below is a chart of Oil that I have been monitoring over the long-term.
First resistance held...we have not yet made it to the upper resistance which is around 87 to 90...which is rather disappointing for the pattern. Depending on next week's action in the dollar, we will see if there is any upside potential remaining.
The Gold Equities GDX chart below this is from Matt at breakpointtrades.com and demonstrates that gold stocks are leading physical gold, as they usually do. If that is the case, any bounce for commodities will be muted.
Below is another chart from breakpointtrades.com of the SPX.
I do not love the count of the wave 4 as it is labelled. But I do think that we are putting in some sort of triangle or flat here for wave 4. This is appropriate alternation and may reflect what the dollar chart seems to indicate - which is that an upside breakout on the dollar will make equities want new lows before we get a sizable bounce.
The dollar held support yesterday. As long as it does not break it, I believe the down-trend in the market will persist and charts that are still not broken such as Oil and Gold will break. Contributing to this view was the large negative divergence at yesterday's close between the EURO and equities. This divergence pointed to negative prices today...I would continue to watch the EURO and SP500 for divergence. New highs in the EURO are usually foreshadowing of SP500 new highs and failed highs in the EURO are reliable and early indicators of failure in the SP500 especially when the SP makes a new swing high.
The dollar genie is below. The gray down trend line that we just broke over is now support. The pattern will not look well with a substantial pullback below this line and I do not anticipate one.That means, we should temper expectations for a pop in the indexes.
There is some additional resistance from the green down trend line at 76.78. A break of this level targets trend reversal confirmation levels at the two red lines. This, in turn, confirms the dollar trend reversal.
So, what this chart looks like is that it is preparing for a large range up candle - and SOON. Sure its overbought...but the markets were overbought for months and still went up - but the dollar has much stronger fundamentals supporting its rally than the stock market did...it also has a much more emotionally and rationally attached contingent looking for a dollar collapse. So, I would temper expectations somewhere between a slight pullback for the dollar and pop for the markets to a mild to negative reception to the GDP numbers triggering a range extension to the current moves in both. The markets do not like to let you into a trade if they don't have to. The dollar chart says to me that Mr. Market is not going to make a lot of room to get short equity indexes and long the dollar.
I have not been posting that much lately as I have had two deaths in the family...hopefully I will be able to get back to normal soon.
Only one chart is necessary to guide us for the next few days. The breakout or retrace on the dollar chart below.
I do not see a high likelihood of a test of the lows on this pattern at this time. Additionally, that would also setup an entirely different scenario. But I do think we may have a small argument with the downtrend line immediately above. This resistance level was rejected today. Perhaps we get a retrace back to the 75.60 to 75.80 area. That would afford the market some upward bias consolidation.
However, it may also be possible that we open with a breakout of this downtrend line. In which case I would think that we see very heavy buying of the dollar. 77.40 would be the nearest target in that case. That would set up a range day down potential for the indexes. Personally, as the markets are oversold, I would like to see some bounce or even rally here and thus a pullback in the Dollar...but this market has not been in the habit of doing what we want it or expect it to. So, given the bearishness of the the sentiment for the dollar, there is a lot of pressure to breakout of this resistance area. So, that is the signal I am looking for.
First, lets talk about the dollar...down trend line at 76.4. Seems obvious that we will complete 5 waves up to test this resistance level. The question is what we get when we reach there. A Breakout? Reversal? Consolidation?
The pattern in the dollar does not leave room for a new low. If the dollar were to break to a new low, it would likely be ushering a different pattern than an ending diagonal...which would likely be a new 5 wave move down, the inflation trade would likely play out. So, it does not seem very likely for a structure like this to be followed be a new low.
Given the intensity of the rise, which was stronger than I was expecting, we are now at nearing formidable resistance with an overly confident set of bears in the market and the divergence in the Euro market, all seem to indicate to me that the amount of bears that will be trapped here could be sizable. If that is the case, a break of the 76.4 area will not give much time to get in. I may not give a retest of consequence and thus the SP500 may find itself in the 1020's lickity split. Incidentally, my target for the SP is 1026 for this initial move down...but we should not count on a big bounce. Just like the rally did not let you in, this bear may be even less understanding.
In any case, it seems like a consolidation is in order for the dollar once it hits 76.40 and that will give us a change to see if the market can muster one last bounce off trend line support. I am not optimistic that the market can stage a rally here given the unexpectedly strong reaction of the dollar here.
JP Morgan was one of the main manipulators installing the Federal Reserve and beginning the great credit inflation era. In addition, JP Morgan was one of the largest margin lenders of the time. And encouraged the credit fueled orgy of the 20's.
The irony is that JP Morgan and the Fed along with selected buddies have done it again. They have created the new instruments of death - the very same conditions they took advantage of in the 1920's to set up the great wealth transfer of 30's.
This is a great documentary by the BBC...a must watch.
The video is in 6 sections...they should load automatically. If that is not the case for you, I have posted the individual links below.
Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
To watch a full video at higher quality you may want to install the veoh player and play the video below. This is an easy install and not dangerous for your computer. veoh is a great site and the video quality is much better than youtube.
I am not sure what he is REALLY looking for regarding the dollar...but it seems he is looking to see if the unit can rally or not...and then make a determination.I see very little case to support a collapse of the dollar. Too many people are looking for it. I guess there is some chance that the dollar could selloff and the market could sell off - which would likely indicate a hyperinflationary condition. He does spend some time on this outlook which does not have much of a shot to me...For oen, hyperinflation is much too obvious a trade at this point. I do think hyperinflation will happen once the fiat system fails, but relative values will be more appropriate then and fiat currencies will end up being replaced. This looks to me to be sometime in the next few years - sometime in the 2012 to 2015.
This video is a "First Baptist" production. I do not like to mix religion and economics and am not affiliated with them in any way. I do think ironically, that there is some religiousness to the attraction of people to the long Gold mentality. I, for one, am not of that view. I believe that the most Armageddon type scenario would be a hyper-inflationary depression....which is why its attractive to many at this point. Gold fits nicely in that view.
I believe that a hyper-inflationary depression would ultimately lead to much more wealth destruction and futher undermine appropriate relative values. This would be catastrophic. A deflationary depression on the other hand, while catastrophic also, would be serving a practical purpose in purging the system and ushering the return to a real-value basis for relative values. This would end up improving the very long-term prospects for individuals and businesses. Keep in ming that "Very Long-term" part.
Interestingly, in my brief look at the dollar today, since it is the main symbol I watch these days, looks like it could have a continued near-term bounce...but it still looks like it has work to do on the downside to create an emotional bottom...this is also reinforced because Gold, Silver, Oil, DBA and some other commodities look like they still have an up move left. Gold targets 1085 to 1090, DBA 27.8 to 28 and Oil 87 to 90. Perhaps we get a gap down in the equity markets and a rise in the dollar on Monday am...followed by a chaotic few days of trading with big reversals. I do think that a new low in the dollar will not result in a new high for most of the equity markets...but commodities look like they will be more sensitive to the move...and could produce nice parabolic type tops.
If there ever were contrarian indicators, they are popping up all over the place, Saudi Arabia, Faber, Weiss to name a few recent ones. Now, Lazard, ostensibly for marketing purposes, is changing currency denomination for their World Trust Fund to Pound Sterling. Anytime the basis for a decision is mass market perception - you can count on one thing. Its popular and wrong.
Change of share trading currency and proposed sub-division
In response to comments from a number of shareholders and potential investors in the Fund about the liquidity of the Fund’s shares, the Board, having consulted with the Fund’s brokers, Arbuthnot Securities, believes that having a larger number of shares in issue with a lower share price than at present and changing the currency in which the shares are traded from US dollars to Sterling, should assist in improving the marketability and liquidity of the Fund’s shares and support the attraction and retention of a diverse shareholder base.
Change of share trading currency – the London Stock Exchange has confirmed that the currency in which the Fund’s shares are traded will change from US dollars to Sterling with effect from 8.00 am on Friday 30 October 2009.
1. There is a problem she is not telling us about
2. she is playing the party line
3. she is close to running out of money
When Sheila Bair tells us that the FDIC is adequately funded:
1. is she actually reassuring us that there is plenty of money?
2. is she lying to us for our own good?
3. is she attempting to instill the state that created this mess - complacency?
Well, the answer is: ALL OF THE ABOVE and then a FEW...
Given the statements made in this video and the misguided effort to release it - it indicates that Sheila Bair is either a liar or a hack. But, I suspect the qualifications to be an accomplished hack would be to to be an accomplished liar.
Lets examine this.
The FDIC does not have adequate funding nor does the Treasury have 500 billion to lend to the FDIC. For that to occur the debt ceiling for the US will need to be raised...hence the need for the FDIC to borrow money from banks like JPM, Well Fargo, BAC directly.
Additionally, Sheila Bair states that she has asked banks to prepay premiums for the next three years in advance. I can tell you one thing, if my insurance company asked me to pay three years in advance, I would be very unhappy and deeply suspicious. Without some sort of compensation I would refuse. Additionally, if she thinks that it is reassuring for people to know that the FDIC needs to ask for three years of premiums in advance - I think she is mistaken. What's next, asking for 10 years of premiums? Why not 20 years? And what do you do next year when all the premium has already been paid in advanace? This is a game of musical chair shells. First, distract them with the music. Second, the slight of hand. Third, the change in strategy and finally followed by the trick - no music, no magician, no chair, no seat and no shell. But my question is, what happened to the last 75 years of premiums? There have been years when the FDIC miraculously abated any premiums since its reserves were supposedly met with credit from the treasury and premiums already on deposit. But, even in that case, how could the FDIC possibly be so mismanged that they need special premiums now? If the FDIC can not run itself, how can they manage a confidence game and ponzi scheme. (Please see my previous articles below regarding the FDIC)
Additionally, she indicates that the FDIC has 42 billion of reserves. Raising an additional 45 billion from advance payment of insurance premiums should do it right? Well, 89 billion, (according to her math) is still a small number especially given that they figure their projections based on $100,000 coverage per account even though they insure $250,000. This is the case, since the 250,000 number is supposedly only temporary so they can just ignore it for budget and accounting purposes...I think their math is fuzzy - to say the least. Incidentally, their reserve number is NOT the number that I come up with.
As if that is not enough, just how many banks does Ms. Bair expect to fail? Remember that IndyMac wasn't even on their list 2 weeks before it failed? Well, I will hazard a guess. There will be thousands of the 8,200 banks in the US that will fail... I will not be surprised with up to two thirds of our banks failing, given the counter-party defaults and liabilities of the the banking system as a whole. More importantly the riskiest banks are the largest ones - you know, the ones that the FDIC is planning on borrowing from...and, ironically, can least afford to support.
Sheila Bair, in my opinion, IS a hack and a liar. Her reassurances aside - the reality is that people will loose lots of pennies (lots and lots and lots of them) because of the FDIC, the ideal that it has fostered and is seeking to further - complacency.
I use Multicharts Charting and Backtesting Software.
I post high resolution charts made with Multicharts and Adobe Illustrator. Click on chart for a more detailled view.
If you do wish to contact me or have any questions you can do so at m3analytics@gmail.com
This is the End and a New Beginning
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I've been thinking about this for some time.
After 21 years of writing this blog almost daily, I've decided to stop
writing the daily updates on the blog.
...
