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Goldman's Technical Update: Bearish, With An "Ultimate H&S Target Of 900"
In this week's update on technical chart formations, Goldman's John Noyce has nothing optimistic to tell clients. Noyce observes that while the market may have entered a short-term consolidation period with the 1,038-1,045, "looking further out the setup on the weekly charts of the S&P and the VIX, plus those for broader asset markets - fixed income in particular – make us think that a sustained bounce is unlikely and that broader risks remain on the downside." Yet the most interesting chart formation is the imminent flattening of the 2s30s... not here, but in the UK. Will the Julian Robertson "suicide" trade shift across the Atlantic?
And other key observations on the SPX:
The setup on the weekly chart still looks very heavy - The market moving lower following the bearish weekly reversal which was posted two weeks ago:
- As discussed previously this was the third bearish weekly reversal pattern posted this year. Each one being posted from a marginally lower high (January 1,150, June 1,131 and August 1,129). This seems to be a signal that the market has lost the momentum associated with the ‘09 uptrend.
- Looking at the market broadly a large Head and Shoulders like structure still appears to be in the process of forming (bearish).
- So while it’s reasonable for the market to consolidate, eventual further downside appears likely.
- To point to stabilisation we’d really need to see a weekly close above the June high at 1,131.
- The ultimate target of the H&S top is approximately 900.
Some other asset classes:
AUDUSD attempting to make a sustained break below the 0.8870-0.8840 pivot region
- Given the high correlation between AUDUSD and equities, the fact that the S&P has moved to support and entered a period of consolidation argues it’s reasonable that AUUSD does the same and consolidates around the 0.8870-8.8840 pivot.
- However, thinking further out, the overall setup continues to look heavy.
- The bounce from the July lows took the form of a wedge, an exhaustion pattern which usually culminates in relatively sharp and extended downside corrections (AUDUSD has previously formed similar patterns prior to sharp corrections)
- The eventual move below the 0.8870-0.8840 pivot which this implies would complete an H&S top targeting 0.85 and should also argue that the recovery from the May lows to the August highs was an ABC correction in Elliott terms
- Taking all of the above, plus developments in correlated markets as discussed on the following slides, into account, it’s very difficult to argue that AUDUSD is going to stabilise quickly. Further downside looks very likely eventually.
Those who are riding the AUD higher (whether vs the USD or the JPY) may want to consider the following:
AUD’s yield advantage is being eroded - Australian 2-year yields have now broken lower from their recent triangle like consolidation, If viewed as a double top the immediate downside target is now 4.08%.
The Australia/U.S. 2-year spread is also turning lower…
- The structure of the rate spread is quite different to that of 2-year Australian yields alone.
- But the implications are similar, the divergent wedge like move into the 76.4 retrace of the sharp drop from the wides of the previous cycle set in February ‘08 implies a significant narrowing in the rate differential is likely.
- The chart [above right] shows the Australia/U.S. 2-year spread overlaid with AUDUSD. The two have remained well correlated over the past three months. Therefore it’s very reasonable to think a continued in the spread would be AUDUSD negative. Currently AUDUSD already looks a little over-valued relative to the level as implied as “fair value” by the spread (as highlighted by the blue box on the chart above).
And possibly the most notable observation: the imminent tightening of a Treasury Curve - this time that of the UK 2s10s, which we are confident will be the next major pain trade.
The market is now breaking materially below the 55-wma for the first time since July ‘08
- The 200-wma as an extended target stands nearly 200bps below current levels. Very close to the prior cyclical peak/wide for the curve from March ‘03.
- Fiscal austerity leads to low rates for a long time and a reach for yield further out the curve?
Anyway, all this is probably completely irrelevant, as are all fundamentals (after all, who knows who the next idiot HP/Dell combination is that will pay 4 times fair value for some non-descript company). The only trade is and has been since March 2009, to frontrun the Fed, and/or to be faster than the bulk of the sheep investors, and to hopefully beat the computers are their own frontrunning game. Everything else is sure to generate losses.
For those who do care, the full Noyse presentation can be found here.
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This is from Dan Norcini at JSM. Absolutely, 100% spot on and a must read.
"Posted: Aug 27 2010 By: Dan Norcini Post Edited: August 27, 2010 at 3:30 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
The equity bulls were salivating over the prospect of watching another episode of “let’s take the shorts out and slaughter them all” as the world eagerly awaited the giving of the law from Mt. Jackson Hole. With claps of thunder in the background and with flashes of lightning interrupting his keen observations upon the state of the US economy, (some swear that they saw the angelic host), the prophet of Monetary religion sounded forth his prognostications and then looked upon his handiwork. He then saw that his work was good and sat down and rested on the seventh day.
Yessiree folks – Chairman Ben uttered his incantations making all well with the turbulent world and bringing light and order to darkness and chaos. I do not know about you, but I feel so much better today after Ben told us all that he is going to make sure that the recovery is safeguarded from harm. When you combine that with news that instead of the economy slowing from a growth rate of 2.4% down to 1.3% as expected, it only slowed down to a 1.6% growth rate, well, it just doesn’t get any better does it?
I mean, the first thing I immediately thought of is, “Why don’t I rush out and buy lots of copper because things are really getting better in a hurry”. Already forgotten are the abysmal housing stats of less than a week and the further rise in foreclosures and delinguencies, not to mention the clogged condition of the bankruptcy courts. Chairman Ben has whisked all of that out of the minds of investors with one mere pronouncement.
The fact that it has taken gazillions of conjured-into-existence-out-of-no-where dollars (some call that stimulus) to produce this pitiful growth rate number for the quarter, seems to have escaped the attention of the equity perma bulls who have yet to come to grips with the consequences of all of this. My own view is that it should be a relatively easy matter to get that growth rate up to double the figure given us. All we would need to do to get to 3.2% growth rate is to print twice the number of Dollars and double the rate of government indebtedness. That should be good for another 100 point rally in the Dow. If anyone knows the number that comes after quadrillion, please send that on to Ben and company. They are going to more than likely be needing it.
Seriously, it is hard to hide my contempt of this disgusting scene. This band of fools somehow believes that prosperity can be created by printing money without any consequences whatsoever. The US is sinking under a mountain of indebtedness and the Fed chairman tells us that it stands ready to engage in even more QE should the need arise. Flash to Ben – the need shall arise. China is already balking at buying US debt meaning you are going to have to buy it all yourself Ben.
What we are witnessing is the death throes of a debt-based monetary system of which those presiding over it apparently have come to believe their own delusions. The US public is learning what our grandfathers learned as a result of the Great Depression – Debt is something to be avoided – not heaped up and accumulated. That the borrower becomes the lender’s slave and that living beyond ones own means is inherently foolish and dangerous. That saddling one’s children and grandchildren with a debt burden that they did not create is immoral and wicked. Yet, all of this is lost upon the monetary lords who have their noses so close to the ground sniffing out the scent that they cannot see the path ahead leads off the edge of an abyss from which there is no escape. Or perhaps they do see and are attempting to secure their own parachutes before leading the rest of the masses over the edge.
I repeat – if lasting prosperity could be created by printing money and giving it away, previous generations that were wiser and more frugal than ours would long ago have stumbled upon this axiom.
That brings us to the war on gold. I am still amazed that after all these years and notwithstanding all the evidence to the contrary, there are still those obtuse enough to insist that there are no official sector attempts to manage or stem the rise in the price of gold. Gold is the only currency that these debasement thieves cannot pollute by conjuring more of it into existence. It rises when distrust of paper currencies is high and confidence in the ability of those who supposedly manage monetary affairs wanes. Thus it is and always will be in direct competition with unbacked fiat currencies.
Our money masters hate the yellow metal because its rise mocks their absurd assertions and debunks their claims of being able to “manage the economy”. It strikes, dagger-like, at the very hubris of these elitists who think that they are wiser than the collective judgment of the entire market, they alone possessing such keen insight into the nature of these matters that we should entrust our financial health to their hands. Imagine the conceit of a few men who think that by pulling on this lever or pushing on this button, that they can assure continuous prosperity and lasting wealth for all. Every generation considers itself wiser than the previous one which is why history does indeed repeat itself. Arrogant men never learn for they lack the one thing essential to make one truly wise – the ability to admit that we do not know all things nor that we mere mortals can always fix what ails us."
He can make up all the conspiracy "short killing" theories he wants.
The technicals were overwhelmingly bullish (oversold) after the downtrend for the last week or whatever, and bearish sentiment is at all time highs that haven't been seen since March of 09.
Both of those things scream buy to me.
The market is a place where only the minority wins. Since the vast majority were bearish, you have to get bullish at a time like that.
Plus, with STO at 7 and turning up, it was inevitable to see a rally.
It was a bond flash crash which flushed cash into equities.
Bonds were hot until they're not. Hence the ever lower yields.
Bond yields are going higher. The flow out of equities has stopped today and it might be a trend changer from the last few months when money flowed out of equities into bonds to the tune of several billions.
Why are the bonds crashing and are equities really a safer play?
Don't tell me equities are up and bonds down because the economy is improving. It is not.
Did Bill Gross shit his pants today? I think so. Pimco might have some calls to answer soon.
Ironically enough, up 15 handles at the moment.
I don't measure like he does, my charts show 820-840 range if 1010 is taken out on good volume and holds on any retest. I would give it a 75% change of hitting PO.
I do not meause the same way either. I get 12 inches if I hold the ruler the other way than what my teachers showed me.
If it does break that neckline, which I don't think it's going to do before one more bounce, I have a target from 840-870. It's just a little bit higher, but still in the same neighborhood.
He is either a rank amatuer or is using 1040 as a neckline. I suspect both alternatives are incorrect however.
So what is your prediction? Maybe you could prove to us all that you're not a "rank amatuer (sic)"
Yup this article and GS head and shoulders thingy clearly a major buy signal
I agree. The market hit severely oversold status right at the 1040 neckline.
Also, every time people talk about a technical pattern publicly, it usually doesn't come true. Remember the last time it broke the 1040 neckline? It didn't get close to its target, and I didn't think that it would.
I think that this might be a fakeout, at least for the immediate future.
I do not know if I can agree with that assessment. If you remember last time he opened his mouth and basically said the Fed was not going to do anything in the immediate future, the market shot up only to lose a lot the next day. I am taking this as a knee jerk reaction only to go down on Monday (minus any fairy dusted news of how awesome it is to over pay in an acquisition).
I have to take a little bit of time and look at the charts again, but I'd say that we have a little bit more to go. We came from 7 on STO on the monthly chart, so there's quite a bit of room to run. Today's chart looks bullish to me as well.
Also, we made a higher low than before. The last low was 1010, and this time 1040. I think that that says we run up at least to previous resistance at 1080, maybe even the old highs at 1130ish.
I think that the news is overly negative. When everybody else thinks something, it's time to move on. I've never seen stuff come true when Cramer and everybody else says it, and everybody else is in agreement.
Those are just my two cents about everything. Either of us could be right.
<double post>
I see support at 666 - I have it tattooed on my forehead.
Branded. Scorned as the one who ran. What
do you do when you're Branded and you know
you're a man?
A week of horrific economic numbers and basically did a round trip from Friday to Friday on the major indices. Amazing.
The promise of never ending liquidity and power to the bots is all they need. Retail is dead. Today was the biggest abomination of fact I have witnessed in these markets and that is saying a lot.
lizzy pizzy (just wanted to poke you as RS)
Wonder what Goldman would say about the surge in AUD/JPY today. ZH has been all over this correlation trade. A look at the chart would show a higher low was set this week with the surge today. Take a look...
http://rosenthalcapital.com/blog/
AUD/JPY is still in a Bearish Pattern, but a move to 78 does not invalidate.
Woohoo, that was a nice rally on a "better than expected (on numbers that were revised last week)" GDP (would have been interesting if expectations were left at 2.4%). Then the money god, Benny Boy, says that they are standing ready to do what is nessary (I guess he knew actual guidence was not needed today) and fire off their recession killing bullets (I do not know what blanks are going to do to a recession) so help him god. He will make sure the rich get richer even if he has to kill the freedom and liberty we enjoy (mostly loaned to us from China). Smooth sailing is ahead all.
The last time I saw research from this guy was late June/early July. He was bearish then too, and the market went straight up 8% in a month.
What I don't understand is...
How are you going to dis Goldman Sachs and always say that they have an agenda when they're bullish.
Yet, when their outlook agrees with yours, suddenly they stopped lying?
Either they weren't lying before about the direction of the market (they weren't, which was proven) and don't lie regularly, or they've always been lying, and they're lying now.
You can't just cherry pick their advice when it agrees.
Feel free to read my response to Chemba, on the same topic. If the Goldman-citing posts confuse you, skip them. Although in this case I am sure you caught the front cover of the report that said this is a trading desk report, and not sell side research. You are aware of the difference, yes?
LOL. Not really. I can't honestly say I know the difference, and I'll admit ignorance there.
I mean, I don't disagree with the research necessarily.
I just think that you can't disagree with them just for being GS one day and then agree with them if their outlook turns bearish.
I don't really mean any disrespect, I just don't think it's consistent.
ah here the education meets the real world
The difference between the desk - sales - research ... ... ...
I'm sure they told their best clients the first week in August.
Market metrics look weak, especially the Baltic Dry index. Keep your powder dry.
I forgot to comment on the possible inflection in the Baltic Dry.
When Ben is done you'll need a ship to keep your powder dry in.
Is everyone still following charts? I thought the machines took over the charts. The machines are the charts.
AUDJPY .... HAHAHAHHAHAHAHAHAHAHAHAHA.
"I'm gonna get you drunk, get you drunk on my lady humps..."
http://www.cnbc.com/id/24419431/
"Big Nipple" of the day award:
Robot always makes me feel better after a long grueling day of work....
Thanks!!!
What I want to know is: Who junks boobie pictures?
It's a nice sight to see.
Thanks RT. Happy weekend!
Robot, hard act to follow. Do opposite of Goldman's advice, do great.
Chart: SPX
All Banana Ben was able to do today was improve the positioning for those wanting to short the market: check out the bearish Gartley Pattern from today's price action. Enjoy your weekend in J-Hole, you A-Holes. You're gonna love Monday.
http://www.screencast.com/t/N2JjOGJhZTUt
Is that a 900 target for the S&P or the DOW?
<personally my target was 850>
Yeah...Goldman...the same company that sells it to you out one window and shorts it out the other.
Fuck them!
and once again....goldman says one thing and does another...panic their clients out and to short while they go long against them and squeeze them out because valuations are attractive down here.
even intel going up on "bad" news says it all...priced in.
curbourrisk wrote:
"Is that a 900 target for the S&P or the DOW?
<personally my target was 850>"
posted above...
"looking further out the setup on the weekly charts of the S&P"
I'm no rocket scientist, but an SPX of 850 might be a tad high if the road apples hit the fan and we retest historic lows.
The SPX and DOW Fibonacci appear to be at their last key support levels, where as other metrics are already showing deterioration (using 3-year weekly charts ). Depends on how you interpret the fractals. :-)
I'll have to ponder this a tad more. We're not in Kansas anymore. My 2-cents.
Oh yes please - avoid ownership in American Business. Please please put all your money into money market funds ( yielding 5 bp) or govt bonds yielding 2%. While the Players load up on the good stuff. Please please.
You definitely want to avoid any ownership interest in companies like exxon Mobil, or Novartis. No no. Too volatile for you. best to stay in 'cash' - zero return with some risk that you wont get to spend it .But at least you are 'safe".
hahahahahaha
If you are still following the "squids" advice don't complain when you wake-up with a big hangover and your shorts on backwards!
We have end of month and POMO plus oversold s-t stochastic. Sure, we could run to 1080, but my guess is a reversal by Tues, as the mafia will still windowdress Monday for the squeeze.
Consider also that retail has pulled $33 Bil out and foreign buyers have always marked the top, and they did in April:
http://financialsense.com/contributors/brian-pretti/from-the-outside-loo...
So, we're left with computers picking eachother's pocket, ahead of ADP job# Wed, and Friday's jobs which could WELL BE NEGATIVE. This will be a dangerous time to make any overnight bets, imo.