Stock market analysis and commentary from a trader's perspective

Friday, July 1, 2016

Vacation

Taking a break from the screens until late August while on vacation. Will post periodically with short paragraphs like this one. The markets are once again a Sea Of Green...except for E-mini futures at the moment. Central banks continue to talk interest rate cuts within months (BOE) and loosening the rules for bond purchases (ECB) and might need a bigger boat (BOJ) while St Louis Fed president Bullard boldly proclaimed that Brexit may end up having no impact on the U.S. economy. That may be true, but many other things may. For now anyway, bias is still higher ahead of Independence Day weekend, but next week could be interesting. All that bid beneath treasuries has only managed to get the 30-year above it recent highs while the rest of the curve wallows. JPY and CHF continue to say hey, pay attention. 2113.32 remains the key swing point for the S&P. I continue to hold XIV and would like to add on any further correction, and hope to add to the VIX calls early next week. Stay tuned for the 6th edition of The Socionomic Implications Of September Vogue in early September. Best of luck in the markets and life.

Classic 80s by The Go-Go's. Love it

Thursday, June 30, 2016

Thursday -- PBoC, IMF Outs DB, Soros, Bullard, VIX, Holidays

S&P E-mini Futures:
Still hovering up, up, up overnight.

News:
Even the PBoC couldn't knock out the markets last night when it was rumored and promptly denied that it would further devalue the yuan to 6.80. With the upcoming July 4th Independence Day holiday in the USA, I wouldn't put it past China to follow through on it while our markets are closed and everyone is watching Wimbledon (brilliant scheduling by the Brits).

More hope. Mitsushige Akino, a Tokyo- based executive officer at Ichiyoshi Asset Management, commented to Bloomberg by phone. “There’s hope for policy measures globally, not just in Japan, so that’s supporting markets”

Bank watch list: "Among the G-SIBs (globally systemically important banks), Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse," the IMF said in its Financial Sector Assessment Program, via Marketwatch.com

George Soros told the European Parliament in Brussels to be more like Ben if it wants to reverse the deflationary trends that are already prevalent throughout the EZ, saying that former Federal Reserve Governor Ben Bernanke had the “right approach" during the financial crisis.

We know what needs to be done," he added. Hint, hint.

Except that *what's been done* has only made assets go higher, but has done little to heal underlying imbalances.

Warning. St. Louis Fed president Bullard speaks in London at 3:15pm EDT. Seems to be the Fed's loose cannon of choice.

FX:
JPY & CHF stronger, AUD & CAD weaker. USD firm. Shaping up for an interesting day, possibly Risk Off, or more probably, a little risk off the the table ahead of the long weekend after a huge bounce.

Treasuries:
Mammoth overnight volume in US 10-year notes. Perhaps a signal that the move to higher highs in treasuries is coming soon. After that, things could get interesting.

Regarding JGBs, “Only God knows how far yields will fall,” Souichi Takeyama, a rates strategist at SMBC Nikko Securities Inc. in Tokyo, told Bloomberg.

In other words, sentiment is extreme.

But then there was this JGB thing, from Ransquawk"The latest securities transaction figures showed foreign investors rapidly increasing their selling of Japanese bonds in the prior week."

Scary.

Energy:
WTI crude giving back some recent gains. NG looks ready for still more highs.

Metals:
Gold and platinum down, while silver, palladium, and copper rally.

S&P Outlook:
E-mini futures blew doors on 2064.75 and closed above it.

The S&P cash closed above the 61.8% retracement of 2069.95.

Volatility has fallen over 40% from its Brexit high. Bot some VIX 25 August calls to hedge XIV which shot to the moon this week.

I rate the pattern and structure as bullish ultimately, but see room for more exploration lower in the near to medium term. It doesn't feel like the recent fireworks are simply "one and done."

But for now we should expect End Of Month and pre-holiday bias to be higher, as it usually is.

Next week could be a whole different story though.

Speaking of holidays, tomorrow is my last day for a while. Taking a long holiday to visit my family and friends back in New England. So tomorrow's post will be it for a bit.


Wednesday, June 29, 2016

Wednesday -- Depositors Or Junior Bondholders, Rising Delinquency Rates

S&P E-mini Futures:
Up, up, up.

News:
It might be time to have a discussion with your bank and ask them who you are. Are you a depositor, an uninsured depositor, or a junior bondholder?

While Brexit hysteria grabs attention, there is a brewing banking crisis in Italy that may make such a conversation important no matter where you live.

What follows is a direct quote from Zero Hedge, something I don't ordinarily do because I use ZH only as an information aggregator from other sources. This one is more fact than opinion, however:

"The banking squeeze has become politically explosive in Italy after thousands of small depositors were wiped out at four regional banks late last year. They were classified as junior bondholders, even though most of them were just ordinary savers who did not realize what was being done with their money."

On Monday, Italy announced plans to bailout three banks with funds totaling approximately €40 billion. Germany just escalated things.


Given the recent performance of European banks, especially Germany's own Deutsche Bank, the UK referendum may turn out to be the match that ignited the fire.

What fire.

The one brought on by rising delinquency rates on bank loans.


While the Fed focuses only on the headline number -- the delinquency rate on all loans (which decreased in the first quarter of 2016) -- it seems to overlook the underlying information that makes up the headline number.

These are delinquency rates on commercial and industrial loans, delinquencies on all loans and leases, and charge-off rates on commercial and industrial loans across US commercial banks -- all of which are increasing at rates not seen since 2008.

It's even worse in Europe, where non-performing debt instruments have been steadily rising since 2010, meaning the Greek crisis never really ended.

The key takeaway in the above link: "Italian banks in particular are suffering from an unbelievably high delinquency rate."

As much as the EU would like us to believe, it's not all about the UK referendum. It could soon be about whether you are a depositor or a little bondholder.

FX:
GBP continues to rally. AUD & CAD strength. JPY hovering flat, but CHF showing strength. EUR stronger, while USD gives back a bit from its violent gap up.

Treasuries:
Continuing a low volume pullback on the way to higher prices and lower yields.

Energy:
WTI crude continues to increase altitude from its recent low. NG extended its impulse to yet another rally high.

Metals:
Gold, silver, platinum, and palladium higher. Copper sitting it out.

S&P Outlook:
Watching 2064.75 on the E-mini futures. Above that would mean a 3-wave decline from the recent pre-UK referendum highs -- a potentially bullish set up.

Of course the market could still correct lower, but the resolution from whatever lower level that was tested would likely be higher highs, and quite possibly a retest of 2134.72.

The cash S&P does not have the same structure. Since it represents the "real" market, unfettered by leverage and thin overnight trading, or suddenly being pushed around by tens of thousands of contracts at opportune times, it remains the one I watch most (levels of which are always bolded, while E-mini levels are never bolded). It is not traded, but is a mathematical number of all 500 issues calculated in real time, and thus is often makes a "truer" chart.

At present, though, the S&P chart is a bit vague, which is why I'm using the E-mini chart for now.


Tuesday, June 28, 2016

Tuesday -- Hope Springs

S&P E-mini Futures:
Up sharply from yesterday's close.

News:
Sea Of Green™ ...on hope, not fundamentals.

Hope that central banks will roll out a coordinated policy response, hope that Cameron's meeting in Brussels will finalize the UK's exit from the EU, hope that Italian banks will get a bailout, and hope that Japan will embark on more stimulus measures.

No talk of stronger earnings, revenues, or sales.  Just hope for more intervention.


Would love to see global voter alignment to revoke the charter of central banks.

Oh, former Fed chairman Alan Greenspan wants a return to the gold standard.

Don't be fooled. If the dollar were to be re-pegged to the price of gold, it could be devalued overnight, yet again, at will, just as Roosevelt's Gold Reserve Act of 1934 devalued the dollar by 41% when the price of gold was "adjusted" from $20.67 per ounce of gold to $35 per ounce.

FX:
GBP higher, USD lower, AUD higher, CAD lower, JPY & CHF weaker. What a day so far.

Treasuries:
Volume is contracting as treasuries consolidate at highs. If the next move has still less volume, may look at the short side.

Energy:
WTI crude made a new swing low last night, but did so looking choppy. NG ripping to new rally highs. Volume drying up.

Metals:
Sea Of Green™ in equities putting a dent in metals except for copper and palladium thus far.

S&P Outlook:
Some cool voodoo. Price is bouncing from an exact 1:1 price/time match from the February lows which backtested an internal trend line and closed at a perfect 38% retracement of the rally from the February lows. Sometimes market create beautiful symmetry.


While yesterday's chart is still possible (showing a possible wave correction before new all-time highs), not forgetting this one due to the amount of hope in the air.


Yesterday's chart reposted for reference. Today could be wave iv, or possibly the wave 2 low.


Monday, June 27, 2016

Monday -- Hanging Chads, BIS Warns, Boris REBOOTS

S&P E-mini Futures:
Back to Prince territory, yet looking firmer.

News:
Seems the world may experience what Americans went through during the infamous Florida Recount of the 2000 election.


Seems the Brexit vote may not matter until Article 50 of the Lisbon Treaty is triggered, and it seems that Prime Minister Cameron is dragging his heels.

Article 50 states the following:

1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.

2. A Member State which decides to withdraw shall notify the European Council of its intention.

Simple enough. Easy to delay. Yet supposedly the EU will not put up with a delay, but that could only be "publicly."

Focusing on Brexit therefore will probably only court confusion.

Better still to focus on central banks. And the central bank for central banks: the BIS in Basel, Switzerland.

The BIS has just released its 86th Annual Report, and once again contains a stark warning courtesy of Bloomberg's summation:


“Monetary policy is running out of room for maneuver,” said Hyun Song Shin, head of research at the BIS, in an interview. “It is not clear how much further stimulus of the real economy can be achieved using monetary-policy tools alone without inviting unwanted distortions.”

God bless London Mayor Boris Johnson, though. He gave The Socionomic Implications Of September Vogue: 2014 its long awaited REBOOT.

In an op-ed Sunday evening, he wrote:

"There is every cause for optimism; a Britain rebooted, reset, renewed and able to engage with the whole world. "

Cheers Boris. Cheers Britain.

FX:
USD stronger, JPY stronger, GBP new lows probing 1.32 (started building long position in pre market). CHF weaker, along with commodity currencies.

Nikkei up over 2% last night on fresh stimulus measures in the pipeline according to Shinzo Abe's wishes (who didn't read the BIS report).

Treasuries:
Feels like everyone's on the same bullish side of the boat. HSBC Holdings Plc’s head of fixed-income research Steven Major says "we’ll have low and negative rates for a very long period of time.”

Not so sure, especially when BIS is staring to sound downright scary, with some of its similar themes echoed in this Bloomberg article:


Energy:
WTI crude down in a choppy decline. NG possible 5-waves down, 3-up pattern which could be near-term bearish after its long rally.

Metals:
Metals higher across the board.

S&P Outlook:
The S&P cash has opened down (at a 1:1 Fib extension in the 2016 area) as futures retest the overnight Prince post-Brexit lows at 1999. Added more XIV in pre market (started adding Friday).

There is a possible 161.8% Fib extension target at 1980 that could shift the tone near term if hit.

Posted a possible bullish chart on Friday intraday that has just been negated due to 2025.91 breaking.

Now thinking a test of the 2000 level or possibly 1950-1980 could see a wave 2 low.

Or a developing impulse to even lower levels. Exciting times.








Friday, June 24, 2016

Friday -- There Will Always Be An England

S&P E-mini Futures:
Sharply down amid historic moves. Currently bouncing after being halted limit down at 1999. Prince lives.

News:
UK votes to leave the EU.

UK Prime Minister David Cameron resigned.

Marketwatch -- ‘Panic’ and ‘bloodbath’ — analysts react to U.K.’s decision to Brexit.

Key words for EU this morning "Political Contagion." Scottish referendum back on the table, as well as similar demands issued by the Netherlands, France, and Italy.

Key moves from central banks: possible global, coordinated policy response.

More stimulus most likely.

FX:
Extreme moves.

GBP traded down as much as 12% to 1.32. A 30-year low and all-time record move.

USDJPY down as much as 7%, reached 98.78.

USD higher. Commodity currencies hammered.

Treasuries:
Prices went from recent ugly down moves to ugly, manic shifts higher.

Energy:
WTI crude hammered but stayed above its 45.91 swing point. NG down but firm.

Metals:
Gold soared above 1362. Silver spiked above 18. Precious platinum up 2%, while more industrial palladium and copper down over 2%

S&P Outlook:
Last order of business yesterday was to buy SPY 204 puts just about 30 seconds after the market closed on its highs.  These will be dumped at the open, in the money.

2000 should be tested today. I will begin to add XIV. The possibility, previously raised by Deutsche Bank, of a coordinated central bank response could do unexpected things to the markets. For one thing, VIX is not up to levels where I would have thought.

In other words, now that the market has provided its upset to bulls, it could easily provide an upset to bears as stimulus aftershocks take place.

Currency moves do not seem to have reached their limits yet and, all things considered, seem a bit resilient. The first tell thus far, along with VIX.

As soon as the waves establish themselves, I will show a chart with a potential wave count.

Thursday, June 23, 2016

Thursday -- Waiting On UK Referendum Vote

S&P E-mini Futures:
Ripping higher but coming off its best levels.

News:
Markets currently appear to be pricing 100% certainty that Britain will remain in the EU, something that feels dangerous.

Especially since the euphoria seems to come from bookmakers' odds which are derived from the total value of bets rather than number of bets. More people could be betting on leave, but a smaller number of deep pockets can skew the odds.

Two items elsewhere should give pause beyond the vote.

French manufacturing and services PMI both came in below 50. Bloomberg TV termed it "ugly."

And in Japan, a majority of the biggest private lenders are "still unwilling to borrow from the market for overnight loans almost six months after the Bank of Japan announced its negative interest-rate policy," Bloomberg noted.

Japan's interbank market is now less than half its size since before negative rates were introduced.

Important to recall that it was the Greek interbank market that seized the morning of the Flash Crash when the S&P dropped 100 points in five minutes.

Meanwhile, as equity markets are jubilant, most sovereign rates are higher.

FX:
Here lies the biggest risk to Risk On: a beautiful 5-wave impulse structure up in GBPUSD and a 3-wave corrective structure down in the US Dollar Index.

In other words, the pound may be primed for a correction, and USD may be primed for a rally.

Perhaps, for the pound, the best has already occurred.

Treasuries:
Prices continue to push up yields in an ugly way.

Energy:
WTI crude looked great yesterday morning but was coming off its best levels, something that brought on a sharp correction. NG may have just created a 5-wave structure down.

Metals:
Gold and silver hovering around up and down. Copper up. Platinum and palladium down.

S&P Outlook:
Speaking of 5-up in GBP and 3-down in USD, there is still 5-down and 3-up in the S&P 500 from the recent 2120.55.

Based on yesterday's price action, this continues to argue for a correction.

Even though futures indicate a strong open, unless 2120.55 is broken, the odds for a correction are still high enough to upset the market.

With gaps as high as 2119.12, there could be quite a rally. And potential for a quite an upset.

What if not? Unless the market moves in a virtual straight line above 2120.55 implying a strong third wave, I've been toying with the idea of a choppy continuation higher that peaks just above 2134.72 but then breaks sharply. Will draw a chart in a few days after the smoke clears.

Remember, no one knows anything until 5pm EST.