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Global Macro Update
Submitted by Nic Lenoir of ICAP
As we indicated yesterday to start the week and the session, we feel the sell-off in risky assets has started to show some divergence in the short-term. We had highlighted this pointing out the commodity space which had started to turn yesterday. That divergence was confirmed with commodities screaming overall higher today, led by Gold. That is all the more interesting given that the dollar index was actually up on the day. Breakdown in correlations however is not uncommon around pivotal points, quite the opposite in fact.
Short term the dollar index in fact has rejected the 50 dma today, and we observe the same for EURUSD. On the Dax we indicated yesterday we were temporarily exiting our short recommendation waiting for a bounce as the 100-dma was tested as support. S&P futures look like they could be turning but so far have failed to break 1,043.5, which is the short-term resistance. A break past 1,043.5 and 1,049 will confirm our expectation to retest at least 1,065/1,070.5 as resistance before the next wave of sell-off. However, I am a little bit surprised by the lack of participtation today after the price action yesterday. I will therefore temper my view, as my original thought we would see 1,012/1,020 could end up playing out in the end. I am only suggesting this because we have actually retraced a lot from oversold levels in terms of momentum indicators while making very little progress to the upside. The wave structure for EURUSD also troubles me a little bit. While on a daily basis we rejected the 50-dma, the last leg lower appears incomplete and we have failed to accelerate. It is possible that intraday tomorrow or overnight we retest the lows before moving on higher in EURUSD and S&P futures as a result, but the overall view of consolidation as slightly better risk appetite remains the same for the next week or two as long as the moving averages mentioned hereabove are respected on a daily close basis.
On a more medium term basis the daily chart on the S&P and Dax show that as long as we remain under 1,070.50 and 5,600 we remain in a bearish dynamic and we will try to highlight goo entry points for fresh shorts as opportunities arise.
We are at an interesting crossroad. The employment chart shows that as of last month NFP was probably understating by at least 100K. However, the series on the chart do not show the recent ISM employment component which historically would be more in line with +200K NFP. While I think the underlying economy is weak and structurally unsound, there appears to still be momentum on the upside in economic data. This was highly questionable as of two weeks ago, but the employment component is a real game changer here. We may in fact have another 6 months of momentum under us. I personally think this is dramatic, because this may reload the fuel tank of the bubble/carry-trade at a time when balance sheet woes seem to catch up with rather optimistic valuations to say the least. Unless governments pull the liquidity rug from under this market, and I mean this globally, we are at risk that the bubble might inflate further, and another jobless (positive NFP is nothing to brag about in itself) recovery with 10% inflation in healthcare costs, housing, and school tuition will follow before another implosion a lot more pronounced than last time around. It is dramatic but a real risk, and I don't think that in such an environment a collapse of the carry trade is seriously possible to threaten this imbalancing act. The cycle keeps going on with more and more amplitude on the downside, this is bad resonance...
For now sell a bounce in risky assets using 1,070 for the S&P future as a proxy for a good entry level to play a retracement to 942 or 875. Beyond that we will have to wait and see if any wisdom enters the minds of central banks and governments. Just keep in mind that Brazil stocks 400% up in 10 years, jobless recoveries, countries pegging currency to others while showing 8% better growth numbers, and higher commodity prices in the face of little wage upside pressures and serious slck in the economy is not a recipe for anything viable. The only end game will be lower prices in all asset classes, including bonds. Whether it happens after an artifical wave of asset inflation which is not confirmed by artifically tamed economic measures of inflation is the question. Maybe when we have pictures of under-educated children fed with unhealthy food playing on their cheap video game system in front pages of newspaper will we address the problem!
Good luck trading,
Nic
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Its good to see gold rising not because of the dollar weakness but in spite of its stregnth against other fiats. Hitting highs in many other currencies as well.
this is so much crap. why don't you EW guys just admit that EW is about as good at PREDICTING something as is watching the ladybugs turn one way or the other as they stoll about.
while i agree ew is voodoo bullshit, nick does not tout it all that much as far as i can see
How are those fundamentals working for ya? Just now flashing a buy, yes?
Gotta use both - and also recommend using a registered name.
how do you predict the market? with fundamentals? what do fundamentals say is the "correct" price for the S&P? what are earnings and what is the correct multiple for earnings, for ebitda, for book value? its all crap depending on how you look at it.
EW is like anything else and is subject to the analysts and markets interpretation. just because many may mis-interpret the structure doesn't mean its worthless.. the analyst may be worthless but don't blame EW.
the most important thing Elliot will tell you is whether the trend is impulsive (5 waves) or corrective (3 waves), ie whether you are with the trend or against it - this whole rally that the bears are trying to short has seen rallies in 5 waves and sell-offs in 3 waves. whether were are in 1 or 3 or 5, or abc doesn't matter, the trend is up.
anyway as my friend always told me, Elliott is simply counting what Fibonacci leaves behind. its the fibs that matter not the wave count.
but don't mind me, keep reading and trying to figure out the fundamentals, while you bang your head against the wall because you are short
many a waver has banged head syndrome
Alright, can some of you traders tell me why STEC beat 3rd qtr eps, and is trading down 30%AH?
didn't read the report, but in general, if you don't buy commodity companies or soon-to-be commodity companies at above 4 times sales, you don't have to mess with that.
of course, then you'd also miss out on Potash, etc., which I have. but that's OK.
Buffett was right that there are no called strikes in investing.
Word is a major customer of STEC - EMC Corp. - won't start new purchases until Q1 2010.
Boy they really did tire-out the shorts today, didn't they? But they only managed a few puny points of recovery, which is sicker when you look at it objectively, than the "green pukes" they've engineered with aloT of money printing & spending. I would like to see how bernake & Fed are going to get away with this as gold shoots to the sky. Will a rising stock market placate the masses (as defined by the porno - TV channels)? Somehow I think $1500 gold will spurt egg on their face. But, hey, maybe I'm wrong like I was in the 90's? Doubt it though. Their tricks don't fool no one - not even in the fourth world. In fact, I should re-iterate, a dollar crisis is not an impossiblity (like more than 50% likely). Bonds & stocks vulberable ( to a crash) as the ton-loads of finanacial BS manufactured by US and UK (the 2 Financial junkey-stars who turns out are bankrupt) gravitate towards their intrinsic value - the price of a pint of piss-beer. Re-rating of local-currency bonds of emerging markets (as the bankrupt condition of the hitherto safe-heavens) becomes common knowledge appears like a good bet also (together with, needless to say, with boat-loads of gold).
Always beware of Mr. Stick....He showed up and pulled another save today.
"They" won't let this thing fall hard.
The dollar was up at the NYC open, then sold down over the course of the session. Gold spent the day going higher without end.
Today's seeming dollar/gold correlation is not quite the real thing.
The massive bet Buffett made on this recovery is the only thing that kept the market from tanking today. It kept the bulls on board for another 24 hours, at least. The huge rally in transports helped immensely, but that will retrace tomorrow, and if there is even a glimmer of sense in the Fed statement -- or even the glimmer of a faint hope for future sense -- this whole thing might come unhinged. The dollar is wound so tight right now it won't take much for it to swing back like a wrecking ball to demolish the risk trade for an 'extended period'. Also keep in mind the markets muted response to good economic headlines and recent earnings beats. The best the bulls can hope for is no change to the Fed's language tomorrow. If they don't announce another bajillion worth of QE, I think the market goes lower.
Or so it seems to me. But I'm a professional bear. :)
Was Buffet's bet really on recovery, or was it on one particular railroad? I invested in BNSF (as well as UP) a year ago on the expectation that higher oil prices would eventually show up for good and start crushing trucking and air freight, as well as that coal traffic would remain important for quite some time. Trains are far more efficient in oil usage than other land transportation, and whatever green hopes/hype there may be, coal is going to be a major source of power for the US for a while. Together, it seems like a good bet.
Likewise, Buffet could also be trying to get out of cash while it still has value. Who knows.
Buffett is the Rockefeller of our time.
"These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again.""
JDR, 1929
He was right, but he was dead by that time.
Buffet got his riches in a 30 year bull market-assisted by moronic FED policies which don't believe in down markets. He also inherited a pile of cash to invest in a 30 year bull market. HE didn't make it all-his Dad made the kernal of cash that Warren threw at everything.
This is a whole new ballgame. Buffet had his clocks cleaned in the crash he never saw(duh) and he raped Goldman Sachs(which he should get a Nobel Prize for) in the crash when Goldman couldn't pay off their hookers and cognac deliveries.
Now he's buying a fucking railroad because he likes Lionel train sets. What he doesn't see is that there is secular behavior changes in consumerism. As in, rampant consumerism is asinine and wasteful. All that shit the Chinese ship here and throw on those trains-well, we sort of don't want it anymore. Buffet will be long gone by the time the economy recovers. He doesn't understand longer cycles and thinks America is all about buying cheap shit from China and flimsey policies from his insurance businesses. Here's hoping he gets his clocks cleaned.
Come on, Ben, just for kicks lay on a 25 pip rise in the FFR. Show us you're no Willie Mays and you really do know how to make a dignified exit. Talk about the strong GDP and recent ISM numbers to justify it. Then let the fun begin!
Believe Buffett's star may be fading. Look at all the brick, carpet, mobile home cos. bought before the housing crash. The Moody's sale gets little attention on CNBC. I think his statement "America will be fine in the future" is being shared by too many, hence becoming a contrary indicator.
Prosperity will always return and come in cycles. However, the high-levels of prosperity cycles in many societies can decline for many years. In other words, each time it feels good to the people iving in that cycle, they may still be worse off compared to people who experienced the 90s in the US for example. Even in the last 10 years, Spain and Portugal probably really felt that things were going great, but it was nowhere near as good as it was in probably the worst times when they were massive empires.
Nic, I expect a possible run-up of the Nasdaq towards its old highs then a reversal and a cut-through the 500 day moving average.
thelastcanary.blogspot.com
Wile I myself find it hard to believe a p3 concept in EW,but for all the attackers,the guy has been right twice. When he recommended shorting at s&p at its high(in 2007,and according to what I read since I am not a sucscriber)). And covered somwhere in FEB while ackonwledging that it might get to the mid six hundreds. And to top it all,he also predicted a (bear rally) with the Dow to 10000. So,that is three time,much better than any other market pundits who even after Bear collapsed,were still insisting that the market is fine. So if you ask me, I would rather lean to his side,even if he is wrong this time. It realy is basically about capital preservation more than about getting rich quick a la Wall St.As long as you don't work there,I don't think you have a chance of making money,long term or short term................
I got to say that the average interest rate in Brazil over the last 10 years is somewhere between 15% and 20% (http://www.portalbrasil.net/indices_selic.htm). That should be carefully regarded before looking at the 400% stock market jump.
I see a retry at DOW 10,000-a fail and and a 6month intermediate down market and consolidation period. To about 7500. Why? Why not
Nah, this market isn't going down until they're done manipulating. And that's not going to be for a long time. Buy all dips.