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Are We There Yet?
Submitted by Nic Lenoir of ICAP
While economic projections are all over the spectrum from 3.5/4% growth and inflation to a relapse, markets don't quite show the same enthusiasm as strategists. While moves are quick and erratic, overall participation in Fixed Income and Equities is very light. The exception is the gold bubble where volumes are on the rise, but keep in mind the gold market is very small compared to the rest of capital markets, and since it's purely speculative and there isn't much else exciting to buy that's understandable.
We would like to point out today the strong divergence observed on 4 key markets: AUDUSD, EURUSD, S&P & Dax Futures.
Interestingly we note that AUDUSD has topped almost exactly on the 2.618 Fibonacci extension at 0.9406 (high was 0.9404). The pair usually observes Fibonacci symmetries quite well. We also see that by taking the 38.2% retracement of the rally since 02/02/09 we find almost exactly the local high of June at 0.8239. We came back today to test the support of the channel we broke last week, but as can be seen recent highs were made with huge divergence. On the 3-hour chart we see it seems likely we will retest 0.9330, but this could be the high before at least a retest of the resistance and neckline of a potential H&S at 0.8968.
When it comes to divergence the daily charts of the Dax and S&P futures are fairly impressive as well. Both RSI and MACD show a tremendous amount of divergence around recent highs. The only possible bullish case I could see in the near term is a quick run up to 1,127 (50% retracement of the entire sell-off). I know many expect to see the 61.8% at 1,235, but volumes are absolutely not confirming any of the new highs made. Also, with many people bracing for 2010, and given it is unlikely that people on the sideline will jump in here without a material retracement providing the illusion at least of a bargain, it is hardly possible we run up that high in the month left before year-end. We would strongly consider building shorts between 1,020 and 1,030.
EURUSD finally is very close to the 76.4% retracement of the last year's sell-off which should prove strong resistance at 1.5161. The MACD and RSI also show quite a bit of divergence. The main support to challenge and break to start a correction is at 1.4850 (50-dma / trend support).
Markets are tired, but it appears that there is enough liquidity being pumped still to shrug any sort of bad news for now. Dubai, even though not a sizable market, is a very good hint at what is going to happen when CRE deals have to be refinanced, unless they default on interest payments before that... It shows that even though assets have been revalued on balance sheets they still have negative carry, and some of them no one really wants to help refinancing. There is also a massive wave of mortgage resets in 2010. That's why overall we think December, without a negative catalyst, will range and maybe make slightly new highs, but we would brace for a different business environment in 2010. There is a lot of expectation, and we have a market which by many technical measures is overbought, and is priced in for the most optimistic range of economic forecasts. Comes also the question of how long Japan and Europe will accept to be the butt of the FX market. Maybe the first cracks will come from political trouble to extend debt ceilings, pass new budgets, or international quarrels on foreign exchange and interventions. Until then, watch the 50-dma on a close in EURUSD, AUDUSD, DXY, or almost every US cross for that matter, and the 100-dma on the Dax. A break would mean Christmas is early this year.
Good luck trading,
Nic
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The markets are tired.
Almost there...
http://stochastix.files.wordpress.com/2007/03/bull-vs-bear.jpg
Don't make me stop the car!!!!
I flinched while reading your comment.
Whenever I heard that as a kid, a slap aside the head always followed. :>)
I flinched when I read ...Are we there yet?...that's why I wrote it...I never asked the question, but always got the slap!!!
I never even thought of asking the question, I really knew better...................and still got the slap!!
This is purely speculative money. The Fed is encourging them to invest in riskier assets but they believe they can get out in time (the same BS as before). The Fed has painted themselves into a corner. The question to ask them is when, if ever, they start raising rates at what % of stock market decline will they reverse that decesion because their pants have brown stains in them.
Does anyone think that the higher taxation on capital gains kicking-in January 2010 will result in massive sales of equities come December?
I thought the capital gains tax rate was effective
through 2010.
Can somebody please help me out? WTF does "The markets are tired" mean? I can understand the shorts are tired of being wrong. I can understand an intellectual being tired of looking silly by a market that refuses to acomodate their abstract ideas of fundamental value. But, what about a market that is up 60% from the lows going through nothing more than a rolling correction but refuses to give ground makes it look tired?
Every time I see a bearish article like this, I buy more.
Bernard Baruch said it best when asked why a market kept going up defying all logic, "well son, it's a bull market".
The market looks tired, you should by some more... In fact it looks damn'nere narcoleptic, i would go all in, today... I hear, it is the last day to buy stocks...
ROTFL
Buy now or be priced out forever. The gates to heaven are closing.
Fair enough. You've read the case for rational markets here and elsewhere but what's your bull case? ...other than buy on bearish articles and buy cause it's a bull market son. Pure genius!
You still don't get it. Being right is power. Making everyone wrong is desctructive. Burning shorts may lift the baloon into the statosphere but the lack of respect of opinion simply makes a plummeting balloon heading into a sea of self righteous punishers.
As I said before. God's righteousness usually begins and ends with creating the delusions to make you wrong. When you run out of participants to create your righteousness. Thats when the capitulation begins. And let me tell you. You've created one hell of a bitch of capitulation and she's going to get her sorry.
This day is upon us
I've been reading about
This day is upon us
My brain scared out
The markets are crashing
The dollar imploded
Some people people are screaming
Some others just folded
We could of spoke out
This days been foretold
But we all went about
Was anyone bold?
Now we just nibble
On the scraps left behind
We got played like a fiddle
By those cowardly spined
My freedoms been taken
Who did we elect?
Many men, "they" been faken
Many generations of neglect
How did we get here?
everyone ask
Just look in the mirror
Now what did you ask?
We could of spoke out
This days been foretold
But we all went about
Was anyone bold?
Was Anyone Bold? by:(Make A Random Thought)
"Living on Credit, Buying more time, Without the Chinese nothing ain't worth a dime, It's like an old fashioned Horror book rhyme, Living on Credit, It sounds simple that's what your thinking,Credit can walk through fire without stinking,It Cost too much, when we can't get enough, Living on Credit"
Living on Credit by:(Make A random Thought)
Sorry, Alan Jackson it just came to me.
Nic,
The dollar didn't rally, the SPX didn't fall. Get over it. Move on.
Is it just me? It is almost a certitude that Zero Hedge is a beard for Government Sachs/PPT to perpetuate a negative outlook on capital markets in order for the masters of the universe to continuously trap shorts, keep the public out of stocks until it is absolutely necessary for them to participate, and deliver disinformation. Tyler Durden is the head vampire, Llyod Blankfein, so my advice to you is do not invite him into your house because he will be impervious to any attacks and will suck the debased dollars out of your aorta!
I like your thinking, SoF. I don't buy it but I like it. Well done.
Forward To The Past.
You've stated what many have been thinking for a long time now.
What you have just said, many have thought for a long long time.......
148233, 148236, 148252, & 148257 The next thing you four will be saying is that the new millennium began on 01/01/2000, and, the end of the first decade will be 12/31/2009.
Fibs??? Really? I stopped reading at that point.
Nic, do you chart iBoxxx HY and IG?
Why has HY held up so well?