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Charting The Week Ahead: Triple Divergence In EURUSD, Fib Support Holds In S&P, And More

Tyler Durden's picture




 

John Noyce is back with his bag of charty goodness in his latest "Charts that matter." While the whole presentation is provided for our readers' perusal, the three charts of note are those of the EURUSD (where we  observe a potentially bearish Triple Divergence), the DAX, which is an important leading indicator of risk, the USDJPY where following last week's fireworks, things appear to have stabilized somewhat, and naturally the S&P, where an important Fib support held, and with the 55 DMA resistance now turning to support. Of course, none of these charts actually matter - the only thing the world cares about is whether all engines are go for Bernanke to spread his Wealth EffectTM some more.

First, the EURUSD:

Per Noyce:

A good place to start seems to be EURUSD, which at the time of writing stands within approximately 1% of an incredibly important pivot region which is centred on 1.4283-1.4371

The importance of this particular pivot point has been highlighted and discussed in a number of updates over recent weeks, but as a reminder it’s formed by the converged interim high from November ’10, the downtrend from the July ‘08 high and the 76.4 retrace of the drop from the November ‘09 high to the June ‘10 low. It’s no exaggeration to say that it’s the most important pivot EURUSD has needed to deal with in many months.

What makes the 76.4 retrace of the November ‘09/June ‘10 drop at 1.4371 all the more important is that EURUSD peaked very slightly below a similar 76.4 retrace at the highs in November ‘09 (the 76.4 retrace of the drop from the July ‘08 high to the October ‘08 low came in at 1.5164 and the market peaked at 1.5145).

It’s difficult to construct a strong cross asset view on EURUSD at this point, but one way or the other, how price action develops around this point will be very important. The other notable point from the weekly chart is that oscillators (slow stochastics) are at the highest levels seen since the market peaked in November ‘11.

The cross asset story isn’t strong enough to actually establish Bearish-EURUSD as a Favourite Tactical Theme, but at first glace, in simple technical terms, it’s likely to be very difficult for the market to break this pivot on first test and at least a decent period of consolidation/correction below it would seem likely.

More on this important chart, which appears limited at least for now by the November 10 1.4283 high, and where we could be seeing a Triple Divergence.

Nothing concrete as yet, but triple negative daily divergence is attempting to form against the recent marginal new highs

Negative divergence develops where the spot market posts a series of marginally higher highs for the trend, but each of those extremes is accompanied by a lower high on the same tenor of oscillator.

Triple divergence is “by definition” quite difficult to form and as a result relatively uncommon. When it does develop it’s therefore taken as a significant warning that the trend in a certain market has reached a point of exhaustion and has become more susceptible to correction.

Interestingly in the case of EURUSD, although it wasn’t perfectly formed, the near equivalent bullish divergence formed against the 10th January low at 1.2860.

Overall, with the market sat just below such a major pivot (as discussed on slide 1) and this type of divergence attempting to develop we should definitely be very aware of the risks of a larger downside correction developing.

A quick look across the ocean, where the DAX is probably the best leading indicator of US risk appetite.

Lead asset markets such as the Dax have stabilised - Last week’s low at 6,484 was only 34 points above the 55-wma which stood at 6,450

Given the Dax was one of the first markets to give clear warning signs that the risks of a sizeable downside correction were increasing 3/4 weeks ago, the hold of this significant pivot/target/support region (the interim highs of the consolidation from April to August ‘10 were converged just below the 55-wma; 6,387-6,330) seems quite significant.

In Europe, where central market planning is not as rampant as in the US, key support lines seem to have a more pronounced impact.

As a reminder the 55-wma has been an important pivot for many years - This seems to increase the significance of the market’s stabilisation just above this pivot

The other point on a broader note which seems to increase the importance of the Dax as an indicator is that it’s not been at the centre of recent market moves and is viewed as being tightly linked to the broader global economy. Simply put it could therefore be viewed as “removing some of the noise” and being a cleaner representation of the underlying global backdrop.

Next, and probably least important of all, is the chart of the policy instrument known as the S&P.

The equity bounce has been correlated to growth currency stabilisation - The “old world” positive correlation between EURAUD and the VIX has also returned over recent weeks

Following the spike from earlier this month which coincided with a rise in implied volatility EURAUD has corrected nearly as sharply lower.

Now for the first time since the correction began the market is approaching a decent support point with the 200-dma and interim high from 28th January being converged on 1.3896-1.3878.

This is therefore a good time to watch for any signs of the market basing. However, given that the positive correlation to implied vol. has resumed and that equity markets may well have materially stabilised, watching for any signs of stabilisation rather than jumping back into bullish-EURAUD themes seems the best way forward at this stage.

Naturally, a glance at the USDJPY following last week's fireworks is in order.

You can make an argument that downside targets have been hit

Late in last Wednesday’s session USDJPY dropped through the historic low from April ‘95 at 79.78. The exact low traded is difficult to confirm, but according to the Reuters/EBS data on our system it was set at 76.25.

As detailed in the update sent around the time of the move last week entitled Quick JPY Charts, you could argue that the spike took the market as far as it needed to go as two targets could be calculated within at 77.75-77.56 range:

–77.75 – The drop from the August ‘98 high to the November ‘99 low was 46.39 big figures. If you extrapolate out a similar size drop from the June ‘07 high at 124.14 you arrive at a target of 77.75.

-77.56 – If you calculate the classic extension target of the triangle like consolidation (shown on the following slide) which began forming from the 1st November ‘10 low it came in at 77.56

Although the market did move beyond this target region to an intraday low of 76.25, you could argue that the final part of the move was under extreme conditions with exceptionally poor liquidity given the time of day at which it took place.

Therefore given the market has, at least for now, stabilised back above that point it’s certainly an important time to begin watching for signs of a base developing

This region was where the prior all time low from April ’95 and the interim low from November ‘10 were converged

In classic technical terms the breakdown point (i.e. the old support level) becomes resistance once the market moves below it, hence it seems quite significant that the market has been able to immediately push back above this point on a close basis.

Overall, while we need to see more evidence to confirm this, initial signs are that we could have quite a significant low in place on USDJPY.

In summary, Noyce believes it is an "ok story for risk assets" - we would therefore be cautious.

Complete deck

Noyce 3.26

 

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Sat, 03/26/2011 - 10:03 | 1102633 cossack55
cossack55's picture

You are so right, Tyler. WFC!

Fundamentals and charts are completely meaningless.

Sat, 03/26/2011 - 22:12 | 1104393 IQ 145
IQ 145's picture

 Charts are not meaningless; the problem is the person who is interpreting them. Charts are very important. In the money now on my EUR'USD Short; perhaps I will be stopped out next week; we'll have to wait and see. The "chart" tells me that the EUR is ripe for the big boys to make some profit on the way down; maybe; maybe not. The problem is not the chart; it's the delusional human being with their measurements that is the problem.

Sat, 03/26/2011 - 10:04 | 1102635 jimijon
jimijon's picture

Does this mean I should sell my silver? Seems like the dollar will be going higher? Or should I first wait to see if there really will be some fireworks on Monday? And what about the Fed? Aren't they supposed to release their goodness as ordered by the courts? 

So many questions all seemingly compressed.

Sat, 03/26/2011 - 11:51 | 1102912 rocker
rocker's picture

If the silver markets are allowed to correct I would hold and buy the Fukn' Dip. For myself, all paper assets are near nill. But physical holdings are still being aquired on all dips. Raised much cash in holding to establish a much larger physical position if we do get a 10, 15, or 20% pullback. Which would actually be healthy and very bullish for PM's. The race to the bottom in currencies is far from over.

Sat, 03/26/2011 - 10:07 | 1102637 dark pools of soros
dark pools of soros's picture

it's like a bunch of scientists talking global warming while the sun is going super nova

Sat, 03/26/2011 - 10:10 | 1102640 El Hosel
El Hosel's picture

   "and probably least important of all, is the chart of the policy instrument known as the S&P."

   

Gee Wally,  All this time I thought it was known as the "tool of the fool".

 

Sat, 03/26/2011 - 10:18 | 1102657 El Hosel
El Hosel's picture

   The Bernak and Geithner "fixed" all the "markets" so they no longer correct, the green machine is a 100% lock....Free money for all believers.

    The crash is guaranteed, all the would be corrections stored up for months on end building power for the next waterfall wipe out. Look out and Blow Us.

Sat, 03/26/2011 - 10:45 | 1102716 Tater Salad
Tater Salad's picture

It's all crap...the money gun tends to take presidence over charts.  Sorry, technicals went out the window on day one when the fed introduced Mr. Thick Dick to Mr. Market.

 

I wouldn't be surprised to see the equity market continue a march higher, maybe much higher!

Sat, 03/26/2011 - 14:05 | 1103250 sunny
sunny's picture

I wouldn't be surprised to see the equity market continue a march higher, maybe much higher!

I must painfully agree.  The new normal is that that worse the news, the more likely the continuation of QE, therefore the markets all rally.  The worst part is that Benny's QE is contagious, it's gone world wide.   Another war, good news lets buy stocks, gas prices going parabolic, good news, lets buy stocks, Japan glowing an eery green, good news, lets buy stocks, inflation causing mass food riots, good news lets buy stocks.  As long as Benny has a press, he will pick up the ticket.  Let's buy stocks.

Free market capitalism my ass.

sunny.

Sat, 03/26/2011 - 10:44 | 1102721 Kina
Kina's picture

God I hate AUD.

Sat, 03/26/2011 - 10:55 | 1102753 irishlink
irishlink's picture

A small observation. Many who believe that Japan will rebuild and that this will increase demand for commodities should now wonder if the area in question will be so toxic that it will never be habituated again.Zero rebuild!

Sat, 03/26/2011 - 10:54 | 1102754 ivars
ivars's picture

I am still looking for a hypothetical reason for a sharp (30-40%) correction of silver but not oil in few weeks time.  Is another credit crunch possible in coming weeks? Is there a too big to fail bank that has relation to silver that may fail in coming weeks? JP Morgan? I hear JPM has got some silver vault clearance in 2 days, hastily. Why? What does that mean? Can JPM collapse due to silver contracts or whatever related to silver it has accumulated due to some external shock, or just because silver is overpriced?

 

Has JP Morgan or any other big USA bank too big exposure to Japan? In case it goes nuclear, and defaults (or many of its enterprises default)?

 

There will be no bailout this time, that is sure. Thanks for any answers.

Sat, 03/26/2011 - 11:13 | 1102806 What_Me_Worry
What_Me_Worry's picture

I'll take the other side of it.

If there is a feeling of risk-off, due to events in the Euro-zone bond market, then it's possible that the FRN outperforms the Euro and causes a drop of the PM complex.  Now, of course, once the ECB decides to shit the bed again and starts dropping blank checks over whatever country asks for them then we are right back to the PM rocket ship.  Once the ECB reacts to the "crisis" then I would expect we hit that area where the FRN and gold/silver can positively correlate.

JPM(if they are truly naked short that huge position in silver) can survive if idiots keep rolling their contracts or settling for cash(albeit, possibly at a hefty premium).  Should investors get smart and finally stand firm on one of these month's contracts then I would guess it's game over for them(again, if they are truly unhedged).  Just look at the March deliveries, next to none actually delivered even though 10 million ounces were up for delivery.

Also, gold/silver tend to drop on the beginning of a new quarter.  I have read a theory behind it, yet it shouldn't happen.  I tend to sell off any paper gold/silver I may have for the first few weeks of a new quarter(coming up) or at least buy a few puts.

Then again, I don't know anything.  I would have never thought the dollar, stocks, bonds, gold and silver could all go huge at the same time(it happened yesterday for several hours in the AM).

I am with you that the financial fallout from Japan hasn't fully been appreciated, yet.

Sat, 03/26/2011 - 11:39 | 1102882 ivars
ivars's picture

Thank You very much. Need to study that strange complicated market of PM where no deliveries happen. So if there was  a request to deliver, is that why JPM built the vault? Excuse for stupid questions.

You are saying if USD outperforms EUR due to various reasons... But that would not cause USD outperform silver by siginificant amount, except if there is something causing total global instability. That would cause USD increase, but also silver - would that cause people demand DELIVERY? Would JPM than go under (or close to), and reveal some practices that will again shake the global trust in banks?

This scenario requires something like aftershock of scale 8 right on Fukushima plant or plain nuclear blast. Not unrealistic, huge earthquakes tend to have 1 huge late aftershock...

The other option of quarter beginning corrections would not lead to required 30-40%.

So its either some instability where people request their silver delivered, with USD going up the same time, and JPM going into close to bancrupcy state, right?

But , with this scenario, oil will drop as well, only not if countered by some huge supply problem ( possible) and Japan demand soaring ( and global, if Japan goes nuclear).

Or there is a discovery that doubles the world silver deposits.

Where can I read about that complicated issue of silver futures selling/bying v.s. vaults and deliveries and why its risky for someone if he is not hedged (truly naked short that huge position in silver) - does JPM has huge position in silver, and what is truly naked short? What is their bet?

 

 

 

 

 

 

 

 

Sat, 03/26/2011 - 13:23 | 1103150 geminiRX
geminiRX's picture

One could actually hope for some PM weakness. I found this article by Armstrong to be extremely enlightening on where gold/silver prices are heading. http://www.martinarmstrong.org/files/how%20and%20when%2003-01-2011.pdf.

Seems like June 14 will be somewhat of a potentially pivotal day for the pm sector.

Sat, 03/26/2011 - 14:25 | 1103292 MrPook
MrPook's picture

I saw that. Armstrong is fascinating. His observations on the flows of capital and confidence are visionary but at first sight the theory of cycles looks completely crazy.

Its patent that he is a genius. But how crazy is he? No idea, still reading.

Sat, 03/26/2011 - 14:25 | 1103297 gwar5
gwar5's picture

Check out some recennt archives of GATA and KWN for nuts and bolts background on the PM market. Daily updates.

GATA --Gold Anti-Trust Action Committee | Exposing the long-term manipulation of the gold market

KWN = King world news --King World News

Also, read anything in the last 2 years, cross-referenced to silver and JPM/HSBC, by PM specialists: James Turk, John Embry, and Ted Butler. Those guys are also often featured at the two above sites.

Jim Rickards is perhaps best for some background on global strategic thinking and gaming where everything may be going with the Fed, IMF, central banks and future monetary systems and where PM may fit in. 

Zerohedge is magically able to pull everything together in real time as these things play out way before it hits the MSM. Catch up so you get the full effect here at ZH as it unfolds.  It's pretty incredible, so be sure to hit the donate button next time you get up for more popcorn. Good luck!

Sat, 03/26/2011 - 22:07 | 1104379 IQ 145
IQ 145's picture

 One more time; it is critically important that you understand there is no such thing as a "naked short" position in the commodities futures market; this language pertains to the stock market; where it has a meaning. it has no meaning applied to the commodities futures market, and is never used in this context except by persons who are going out of their way to tell us that they know less than nothing aboutl the subject under discussion. "I have read a theory behind it, ---" stop reading "theories" and do your homework; be willing to be surprised by the fact that there is no manipulation in the prices of gold and silver, as usually discussed. A crowd of fervent believers equalls a cult; it does not equal a fact. there is no mechanism by which the Comex can change, for instance, the thirty day average price of silver. This is a fact. not a theory or an opinion. the mechanism does not exist. Naked shorts do not exist. Try a little harder to grasp the nature of the world you live in; the international silver market is not manipulated by the Comex or by JP Morgan. This is merely childish ignorance.

Sat, 03/26/2011 - 11:07 | 1102789 Careless Whisper
Careless Whisper's picture

The market moving lower...

This seems to be a signal that the market has lost the momentum...

...even further downside appears likely.

The ultimate target of the H&S top is approximately 900.

All quotes from Mister John Noyce's "charts that matter" Friday, August 27, 2010, referring to the s&p 500 (1053 that day). In fairness to Mister Noyce, GoldmanSachs did have this disclaimer on the cover of his report:

This is not research and is not intended as such. This has been prepared by individuals on the sales/trading desks of the Securities Division.

Sat, 03/26/2011 - 11:23 | 1102841 AmCockerSpaniel
AmCockerSpaniel's picture

Could it be that JPM is thinking of NOT having to come up with the silver by just saying it's in it's vault?? Who would know what's real in their vault. Just how many that stand for delivery take the stuff out the door? The game just keeps going on, and never a short squeeze.

Sat, 03/26/2011 - 11:51 | 1102911 ivars
ivars's picture

Here is interesting quote I found before 2008 50% correction happened in silver:

http://www.marketwatch.com/Community/groups/small-silver-investor/topics...

"I think the data in the COT and the Bank Participation Reports indicate that the U.S. Government may have bailed out the biggest COMEX silver short by arranging for a U.S. bank to take over their position. This coincides with JP Morgan’s takeover of Bear Stearns. In fact, it would not surprise me if the bailout was JP Morgan taking over Bear Stearns‘ short silver position, at the government‘s request. While this silver bailout (if it happened) was no doubt undertaken with financial system stability in mind, it has disturbing implications of legality and equity"

So now ( from 2008) , its 2,5 years JPM owns this short silver position which has from that time increased in potential losses by approximately 2 times ( and it did bring down Bear Sterns then).

From 2008 8 october:

This is the relevant quote from the CFTC’s Oct 8 letter.

"In effect the increase [in the short position] reflected a one time acquisition of positions that were acquired through a merger in the industry, and not new trading by a bank. Thus, the assertion that there was new activity undertaken by the banks that led to a fall in silver prices is not correct since the "new" activity reflected in the CFTC’s report was in essence positions that had already existed in the market prior to July 1st."

Can something similar happen to JPM and why? What events could prompt someone try to bailout JPMs shorts in silver in next weeks? How would they be bailed out ? By nationalizing the bank 100%? Is there any other bank willing to take these shorts over?

 

 

 


 

 

Sat, 03/26/2011 - 13:12 | 1103113 max2205
max2205's picture

Why do you think JPM is marking the short position to market?!
They don't mark ANYTHING to market. Fed absorbs the loss daily till it breaks. Wake up!!

Sat, 03/26/2011 - 13:24 | 1103147 ivars
ivars's picture

When will it break? The FED? If prices go up to?

Sat, 03/26/2011 - 15:27 | 1103414 AmCockerSpaniel
AmCockerSpaniel's picture

I don't know how the Fed fits in. JPM may just make more money on derivatives it sells, and takes a smaller loss on the shorts?? This works as long as one does not have to produce the physical silver (just pay the longs). Think naked shorting. Now the stand and deliver is an issue, but if they don't want to take the silver out the door (hold it for me in "your" vault). Then it's much like they didn't stand at all. Now you have allocated mixed in with unallocated (in the fox's vault, not the nymex's that gets audited). So the fox said; I did not have to come up with that physical for the nymex, I just have it in my certified vault. Come get it if you want, or pay me to hold it for you. Now this can go on for a long time if just a few want to take possession of the metal.

Sat, 03/26/2011 - 11:46 | 1102899 RobotTrader
RobotTrader's picture

Absolutely no selloff in the SPY until:

PCLN, BIDU, LULU, NFLX, AAPL cave in.

 

Absolutely no chance of a bear market until:

JPM, WFC, EZPW get pole-axed.

 

No chance of a reversal in the "Risk On" trade until:

GLD, SLV, CEF, UGA get blowtorched off the highs.

 

We are back above the 21-day, which is the shortest of the short term mo-mo EMA gamed by the daytrading Riverboaters.

Sat, 03/26/2011 - 12:05 | 1102945 plocequ1
plocequ1's picture

You go Robo. Tell it like it  T  I  Z Z

Sat, 03/26/2011 - 13:42 | 1103194 The Axe
The Axe's picture

include a chart with volume...ex: AAPL  when AAPL got pole-AXED (like that) huge volume--its rebound...1/3 the volume...same as SPY...Bullshit dead cat bounce..

Sat, 03/26/2011 - 19:33 | 1103947 prophet
prophet's picture

or it could be a high volume spike low 

Sat, 03/26/2011 - 11:51 | 1102917 99er
99er's picture

Weekend Charts

http://www.zerohedge.com/forum/99er-charts-0

Have a good one.

Sat, 03/26/2011 - 12:43 | 1103049 johny2
johny2's picture

IMF is preparing for a threat to monetary system....is it the Silver and JPM?

 

Sat, 03/26/2011 - 12:55 | 1103075 Luke 21
Luke 21's picture

What happened to Nic Lenoir? Lenoir was legit. Nic, where are you buddy? Come back. I am going to have your mug posted on the back of a milk carton.   

Sat, 03/26/2011 - 13:08 | 1103106 max2205
max2205's picture

Status green

4 wk ema never crossed the 10 wk ema on the dip. Spx price above 4 wk ema again. Stay long till stop just below 4 wk ema

Over and out

Sat, 03/26/2011 - 13:23 | 1103142 Brokenarrow
Brokenarrow's picture

i would turn her into a glazed donut:)

Sat, 03/26/2011 - 14:35 | 1103312 redstuffer
redstuffer's picture

Isn't it possible that china has been behind the silver short position ever since they knew they were getting hosed on the money printing the feds have been orchestrating. Ingenious!  They beat the price down, then buy and take delivery just enough that silver doesn't go ballistic.

Sat, 03/26/2011 - 19:18 | 1103924 Yen Cross
Yen Cross's picture

Eur/Usd did not!!! Confirm a double TOP or BOTTOM! Period! Run short term Fibis and trendlines. Might be time to Fade the trade.

Sat, 03/26/2011 - 21:44 | 1104308 bluebare
bluebare's picture

A basic premise of many here is that Fed QE injections are artificially lifting the market.  By now, the relationship between QE injections and the subsequent market reactions should be graphable.  

That's a chart I'd like to see.

Sat, 03/26/2011 - 23:38 | 1104554 Grand Supercycle
Grand Supercycle's picture

EURUSD daily chart is close to rolling over imho.

Long term indicators continue to warn of USD strength and EURUSD weakness...

http://stockmarket618.wordpress.com

Sun, 03/27/2011 - 06:17 | 1104959 TexDenim
TexDenim's picture

So if the devils at GS are this optimistic, the prospects for QE3 are zero, right? The market is now strong enough to sustain itself without support from Zimbabwe Ben?

Sun, 03/27/2011 - 08:26 | 1105060 Living_Stone
Living_Stone's picture

Here's an interesting chart.  It seems the Bernanke has bridged the chasm?

http://www.phantasmix.com/wp-content/uploads/2008/10/dow-then-now.jpg

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