Global Macro Update

Submitted by Nic Lenoir of ICAP

We start our update concluding the week like we started it: with the Vix. We pointed out a morning star on the Vix last Monday, and today the market was finally given a reason to validate the reversal with the news of GS being sued by the SEC. If it had not been for this piece of news it would have been something else. People are often quick to point that the market turned because of such or such event, but what is most important when an event occurs is that the market be positioned the wrong way so that the exogenous shock applied to the system generates the maximum amount of resonance.

As such, the outside bullish reversal in VIX Monday was indicative that people were not only long, but complacent enough not to hedge so that the demand for volatility hence protection was very low. This can be seen in the fact that on Wednesday the put/call ratio was basically at its lowest since December 1999, or the 21-day RSI on the Nasdaq was its highest since... December 1999!

For those who are not short here a quick look at the S&P futures on the 15-minute chart indicates a very interesting price structure. We have triggered a H&S on the highs, people who would like to short here should do so on a pull-back at 1,198 observing a stop above 1,203 (if we bypass the neckline). On the downside a break of 1,185 will be the acceleration level. Let's keep in mind that every reversal in VIX outside the bollinger bands has triggered a move of at least 5% over the last 9 months.

For the 10Y Treasury futures we have been bullish since 115, with initial target at 117-10. We see no divergence on the 3-hour 21-RSI so chances are we could keep moving higher. Revised target on the upside is 117-20, and buyers should wait for a pull-back toward the main support zone 116-02+/116-05+. A break past 117-20 woul open the way for a move up to 118-31 which would most likely coincide with a break in equities.

Finally we had recommended closing out long positions in gold initiated at 1,080/1,090 the other day at 1,156 after posting an evening star, even recommending tactical players to sell with a stop above 1,162.5 on a daily close playing at least 1,135. We have seen the support levels as can be seen on the daily chart. Those who are still core long can add to their positions here around 1,135 but should be careful if we post a daily close below 1,130.

Good luck trading,

Nic

Comments

[rubearish10]

Hate to say this but it feels as if this will be a one day event and we resume uptrend on Monday, as usual.

[carbonmutant]

This maket has wanted an excuse to sell off for months.

[zenon]

Exactly! I think even the govt. muts got it, ie., that when the economy is in the tank, it's bad P.R. to have W.S. so well-off. In fact, as this site is aware, the squid and the raptor were both in all likelihood short into this show. To make a long story short, trees don't grow to the sky, esp. if you have a few cucumbers up your ass. I think the odds are overwhelmingly in favor of a major top-in-the making. This both from a tech. point as well as the sink-ass fundamemntals that are dribbled-out daily.

[Cleanclog]

It may not be Monday, but I think we'll get back to the uptrend until we get to 1124, hit that 61.8 Fibonacci level, and then, at last, have the market reflect the fundamentals and crash again, not just set back.  Look out for how darn fast that will be when it arrives.

[vainamoinen]

TD:

Thx for the Lenoir posts. Well thought out and easy to understand. Always informative and much appreciated by an advanced beginner.

V.

[snowdude]

This "reversal" today is quite interesting.  I had been reading about some of the cycle theories, Armstrong's in particular.  He identified today as a key turning point (exactly 'Pi' years from his last cycle peak in late February 2007) so I was waiting to see what would happen.  All the markets appear to be very much in the red, especially risk assets like gold and oil.

On top of that, the news tonight is saying that as a result of the volcanic ash clouds in Europe, as of today the global airline industry is experiencing a much broader shutdown than on 9/11. 

Guess what the last Pi-cycle date was:  11 September 2001.  Maybe there is something to this afterall.  If nothing else, it's more accurate than the TV forecasters.