Monday Morning Take

Natural gas is showing signs of breaking out (I'd like to see it above the October high of 4.260). Gold is getting into a zone where it's starting to interest me from the long side. Oil too. Ditto the euro. What do these tea leaves mean? That's what I'll be trying to figure out over the next several weeks.

For now I maintain focus on the S&P, and for that I must mention the overnight action in the German DAX. The DAX blew a 2.2% rally last night and was down .6% earlier today.

Both China and Euro Zone PMIs were relatively weak which would lead one to think that bulls would think this Thursday's ECB meeting would include a special stimulus announcement by Draghi. But that did not appear to have materialized.

It does not seem to have affected S&P futures which are cautiously treading higher. For today it would seem that a marginal new high is in order, i.e., doing everything it can to get above the all-time high of 2019.26 which was missed on Friday by 1.07 points even after window dressing on top of the most egregious example of shock & awe central banking ever, the intention of the BOJ to buy over $1 trillion worth of equities and other tradeable assets around the world.

Nothing sums up central banking better than this photo of the BOJ's Kuroda. It should be made into a poster.

Central banking

Hat tip to Zero Hedge who used this image first. And God bless the photographer.

Of the Fib targets which are still in effect since before the correction, there is an extension target of 2072.20 which lines up with the upper trend line of the weekly chart going back to last year (2013).

I had thought that the inability to best the previous high of Friday would be quite bearish. But that does not seem to be the case yet. It would currently take below 1969.04 for the market to signal a disturbance in the force.

Regarding the BOJ, there is an excellent article about it on Bloomberg. Kuroda’s Stimulus Turns Focus Back to Abe’s Third Arrow

My take is that the "easy" work has already taken place, and the much more difficult policy stuff lies ahead. It's one thing for a central banker to pull a lever or a government pension such as GPIF to reallocate its investments. It's quite another thing to get bureaucrats to agree how to "strengthen corporate governance, deregulate agriculture, increase female participation in the workforce, and secure trade agreements."

Additionally, it remains to be seen whether the political will is there for yet another rise in the sales tax which has gone from 5 to 8% this year and is planned to go to 10% next year.

I'm not certain the long Nikkei or the short yen crowd is out of the woods yet.