Stock market analysis and commentary from a trader's perspective

Thursday, October 30, 2014

Germany & The Big D; Futures & The Big Swing

Today it's Germany.

Germany's latest CPI figures show that deflation is now biting into the world's fourth largest economy.

Though the source is uncertain, Zero Hedge just reported:

"Germany, the country that is supposedly Europe's growth dynamo is now in outright deflation."

October regional inflation data for Germany shows:

Brandenburg CPI -0.3%, Previous 0.0%
Hesse CPI -0.2%, Previous 0.1%
Saxony CPI -0.2%, Previous 0.1%
Bavaria CPI -0.3%, Previous 0.1%

Also, when asked why the recent stress tests on European banks did not use any negative inflation assumptions, ZH also noted a telling quote by ECB governor Vítor Manuel Ribeiro Constâncio who said "the scenario of deflation is not there because indeed we don't consider that deflation is going to happen."

This is classic head in the sand stuff that causes big trouble for bureaucrats and politicians everywhere who think they live in a world of their own.

But the results were immediate in the financial markets. E-mini futures reversed a solid 6 point gain to head as much as 15 points lower, a swing of 21.5 points. This morning oil is lower, gold is lower, the euro is lower, the dollar is higher, and the major bourses across Europe are down hard.

Exactly the type of scenario that makes life difficult for central bankers and the Peter Schiffs of the world.

I see room for slightly higher near-term highs as long as 1961.95 holds. If it breaks, 1904.01 and 1910 (200dma) remain levels of interest.

Wednesday, October 29, 2014

Waiting In The Grass On Fed Day, Schiff Still So Wrong

Fed day. QE3 scheduled to end today. It feels as if the market has frontrun the Fed -- was thinking yesterday felt like short covering and laughed when I saw this chart on the daily recap at Zero Hedge, one of the best things they publish each day.

Source: Zero Hedge
NYSE ticks and A/Ds were going nuts all day which made me wish I hadn't dumped the SPY 196 calls in the morning. But yet again there was no volume. So I was somewhat relieved to find some visual proof that at least the Russell was frantically being "covered."

No one wanted the market at the lows. The S&P stalled twice at the 23.6 and 38% retracement levels long enough to require two opening gap ups then a third to get above the 61.8% and a fourth to clear the 50dma. Pathetic.

Pathetic is what some of the 130 hedge funds that hold the Facebook were thinking last night when it was revealed on the earnings conference call that the company had accounted for $15 billion out of the $19 billion purchase of Whatsapp as GOODWILL.

The stock sold off 12% and traded below $72 at one point. That's equivalent to the S&P revisiting the 1820.66 lows in 1 1/2 hours.

From an ad standpoint I do think the Facebook is one of the most compelling media buys out there. It remains to be seen, however, just how savvy its CEO really is.

Today we'll see how savvy the markets have been -- whether the markets have "known" something about the Fed statement or not. Or whether they're savvy in a completely different way . . .

I tend to go with the latter. The wisdom of the market is often far beyond our ken, many times only observable long after the fact.

The above internal trend line (love them) jumped out at me only after yesterday's close and was a real ah-ha moment. There may have been a larger plan all along.

Having closed above the 78.6% retracement sets up a possible run to new all-time highs. But from current levels or lower ones? That is the question that drives me now.

Credit is not confirming the rise, nor is energy. New highs were reached in the overnight futures session. A/Ds look great. I will sit still until the market reacts to the Fed decision (or doesn't).

My UVXY position will let me buy a greater number of SPY calls the next time there is an opportunity. Until then I wait in the grass patiently.

Elsewhere, I did get word back from Erica Blomgren regarding the language the Riksbank used when explaining the interest rate cut to zero. As expected, they avoided the D word:

Guys like Peter Schiff think low interest rates mean inflation, that gold will suddenly head to $5,000 or some such nonsense. They would be wrong.

Gold is an asset just like any other one that is priced in dollars. As deflation slowly takes hold of a global financial system that runs on credit and debt, it will be the dirty secret of fractional-reserve banking that will cause a short squeeze not in gold but in dollars. Gold will fall along with every other asset priced in dollars (or beholden to dollars via trade) as assets are desperately sold to create ever scarcer dollars as dollar "credits" evaporate the same way they came into existence: into thin air.

Tuesday, October 28, 2014

Sweden Has A "D" In It. So Does Oil. So Does Twitter.

It's spreading. It's in Sweden and it could spread. It's not Ebola. It's worse.


The Riksbank just cut interest rates more than expected, to 0.0%, due to low inflation expectations, according to Erica Blomgren. Still waiting to hear from her whether the Riksbank actually uses the word deflation, or whether they dance around with vague musings such as, "an unwelcome fall in the rate of inflation" or some other such nonsense.

Here's an illuminating tidbit from Bloomberg: "The world’s oldest central bank has come under attack from former board members, politicians and economists for being too quick to raise rates as the financial crisis eased in 2010, and then for waiting too long to fight the deflation that ensued."

Deflation that ensued from higher interest rates. Remember that.

Meanwhile in Japan, the BOJ is said to be weighing whether or not to moderate their inflation view as oil falls, which adds to signs of waning momentum in the world’s third-biggest economy, according to Bloomberg.

Japan simply can't afford for Abenomics to fail, which it currently is. This would mean that yet again massive stimulus efforts have failed to eradicate falling prices. So now Scandia is following suit, along with much of Europe, and things aren't looking good under the hood in the USA, either.

Oil is merely a symptom of it. And it's saying "lower global demand."

Lower demand seems to be affecting Twitter as well, both from an active user standpoint as well as a stock price one. Worldwide, international, and USA timeline views are down 6, 7, and 8% year-over-year respectively.

Overnight S&P futures were in high demand as the market is most likely gearing up for a burst above the 50dma in the cash session today. Possibly 1970.36 will get hit too.

I will probably dump the SPY 196 calls I bought yesterday around the open and add a bit more UVXY. There is one juicy level of Fib extension confluence surrounding the 1981-1982 area that may or may attract the market, but I doubt I'll try to stick around.

Once the market opens, maybe things will change.

Still liking the 1904.01 gap below and the 200dma now at 1909.

Monday, October 27, 2014

POMO Ends Today. Or Not.

Found this on Zero Hedge Friday afternoon. It will be very interesting to see how the markets behave after this morning when the last Fed POMO operation is scheduled to take place under QE3 (11:00 am).

Source: Zero Hedge

There will be no press conference after this week's FOMC meeting concludes Wednesday, nor will there be a Q&A after Yellen speaks in Washington the next day, so it seems, for this week at least, that Fed intends for the market to fend to itself.

After that, who knows. I could totally see these desperate clowns adding more fuel to the fire, so by no means do I see today as the last batch ever. Especially when money velocity still looks like this after five years of stimulus.

So after five rounds of POMO in seven trading sessions, Friday still closed just below the 50dma without ever reaching it. Futures have reversed sharply from their overnight highs, and Europe appears to be making impulsive declines thus far today. There is a large gap at 1904.01 which coincides with the 200dma at roughly 1908. These levels have potential.

So does 1970.36 above.

I did see a wave count this weekend which showed the decline as either a completed wave 1 impulse or wave a. Either count could see 1970.36 exceeded before another correction. If it indeed made a wave 1 low, there could be something resembling a mini crash between right now and a few weeks from now. Best to tread carefully and take it step by step until the next high odds pattern presents itself.

Oh, and because former guerrilla and enthusiastic Amazon dam builder Dilma Rousseff won re-election in Brazil, Petrobras is down 17% this morning which means my position is down 24%. Good thing this is a very long term hedge on the price of oil.

If PBR cracks $10.20 I would eventually add more, but only when the volume calms down. On a weekly basis, it would need less than 145 million shares otherwise I will give it time. Plenty of it.

However, the high volume coming out of it could also suggest something far worse: nationalization. Too soon to tell though. Rousseff was Minister Of Energy under previous president Luiz Inácio Lula da Silva and was praised for her dialogue with the private sector as well as her practicality, including expanding the free market in Brazilian energy. So PBR's future is still up in the air for now.

Friday, October 24, 2014

Anything She Wants

Posted this chart on Stocktwits and Twitter yesterday at 2:46 pm.

Ironically, at 2:51 pm all hell broke loose. I take no credit at all for the timing. But I mention it because it illustrates one of my favorite things about Fibonacci, Elliott wave theory, and other forms of market geometry: form follows function, and the "reasons" take care of themselves.

Many attribute yesterday's violent reversal to the latest Ebola scare, this time in NYC. However, it amazes me that the news "broke" just minutes after the trend line shown above was tested. And no one wants to mention the new moon, haha.

Whatever, none of it may matter because 1922.50 held last night in the futures, and I'm kind of glad it did. I still want either a legitimate test of the 50dma at the 1966 area in the cash market today, or a full-on test of the 1970.36 swing point.

If yesterday was the test, there should be no mistaking it today. 1926.83 should be retired with extreme prejudice, but depending on how deep the market retraced, there could be a more complex pattern building.

In fact, in Elliott wave theory, there are thirteen possible corrective patterns. I try to start simple. So it's possible that a decline might only be part of a wave b that could still reach higher before a stronger decline days later.

The point is that either the market has made THE TOP or it hasn't. I'm still in the camp that it hasn't; that it has only made some sort of wave three high, and that we're currently in wave four which could still probe much lower before a final wave five to new all-time highs.

But if I'm wrong, the top chart on this page will be the one to be prepared for. And there is only one way to find out -- but not until Ms. Market sees fit to tell us.

Until then, she can do anything she wants and get away with it.

Thursday, October 23, 2014

Wanting A Legitimate Test On A New Moon

Everything looked great yesterday -- until crude oil threatened to break $80/barrel again. Then it got interesting. The S&P shaved off nearly 25 points and got people's attention.

Here's what was noted the day before this happened:

The result was that the S&P got above the previous day's high and closed below it on lighter volume, which is never a good sign.

Here's the thing about oil: it could easily get to $85 and still remain technically weak.

This morning futures are well bid, but not able thus far to crest their best levels from yesterday.

I would prefer they did, at least so that the 50dma could be legitimately tested near the 1967 area. But the market does what it wants when it wants.

Today is the new moon at 12:56 pm EDT. The last one was within 3 days of the Alibaba Top, and a full moon was within 3 days of the 1904.78 August lows. So this market may be on borrowed time. I continue to add to UVXY against SPY calls which are hedged with cheap OEX puts.

Wednesday, October 22, 2014

Price Overlap May Be The First Sign

Price has overlapped 1923.06, the first sign that the decline may be corrective. But 1970.36 remains the kingpin. And if the charts below matter at all, the ascent could soon get a little tougher.

With the new moon lurking tomorrow, we may even be "here" already, or we're almost "there."

Are we here yet?

Or almost there?

Even if 1970.36 is exceeded, signalling that the structure is most probably corrective, it might not mean that price is through with testing lower. It might only mean that if it does head lower (and the levels could be quite scary) it should eventually be bought.

And watch out for a potential asterisk.