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Graham Summers’ Weekly Market Forecast (Currency Pairs Edition)
Over the
last two weeks, I’ve called for a reversal in stocks. It seems I’ve completely
underestimated the ability of the Federal Reserve and its Primary Dealers to
ramp the market higher on next to no volume.
Indeed,
stocks have soared in the last six weeks, posting their best September
performance in 71 years and rising roughly 12% from trough to peak. This
surpasses even July’s monster rally of 11.1% from trough to peak, stands as the
most aggressive rally since the April 2010 top.
However,
beneath the surface of this massive move, the stock market shows the clear
imprint of intervention and manipulation. Indeed, we have seen no fewer than
six gaps up during this rally. Gaps up are NOT a sign of a healthy robust
market; they are sign of “behind the scenes” manipulation taking place in the
futures night session when market volume is low:
Aside from
the gaps up, we also have the Federal Reserve’s Permanent Open Market
Operations (POMO), also know as its “QE lite” program. Rather than dress this
nonsense up in clever terminology, let’s just say it consists of the Fed
dishing billions of US Dollars to Wall Street banks, which subsequently ramp
the stock market higher. The end result is that stocks have exploded higher
while the US Dollar has collapsed:
Seeing all
of this, my previous two weekly forecasts have called for a reversal in stocks.
Suffice to say I’ve been wrong both weeks. The Fed has clearly gone “all in” on
its “maintain stock levels at whatever cost” policy. And while stocks have
broken their trend line, they continue to rally in stair step fashion:
As I write
this on Sunday evening, the S&P 500 futures are rallying, signaling that
we’ve likely got more of this madness coming this week. Indeed, until the
Euro/US Dollar and Australian Dollar/ US Dollar pairs (which have become the
two carry trades of choice for the markets) break their upward trading
channels, the madness will likely continue:
The Euro/ US
Dollar pair:
The
Australian Dollar/ US Dollar (pair):
With that in
mind, keep your eyes on both of these pairs for signs of when the inevitable
collapse will begin for stocks. In the meantime, this week we’re likely to see
a continuation of the same action we’ve seen in the last two weeks: stocks
gradually rallying higher in stair step fashion with “the invisible hand”
stepping in to prop the market up anytime we come close to a breakdown. The
only thing that will change this is if the brutal economic realities choose to
assert themselves globally. The European banking crisis continues to spread
while millions of European citizens have taken to the streets in protest of the
various austerity measures being imposed.
On this side
of the pond, some 43 million Americans (13% of the total population) are
officially living in poverty. The jobs numbers are a joke and all talk of
recovery has been manufactured via accounting gimmicks or full-scale fraud. I’m
detailing more of this in tomorrow’s article, but for the sake of this week’s
forecast, I’m simply trying to point out that the US economy is on the brink of
full-scale disaster and at some point (possibly this week) this reality could
hit the stock market.
In the
meantime, having cleared 1,150 with conviction, the May high (1173) and then
1200 are the next lines of resistance on the S&P 500. Support is at 1,150,
1,140, and 1,120.
Good Investing!
Graham
Summers
PS. If
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Sweet, I love volitilitah!
I expect that , but based on a different analysis. I think you on about the grandest debacle otherwise.
When markets ramp on clearly bearish inside bars, then there is obviously a problem, too. I would just like to assure you that fundamentals do mean something and all your trade signals mean something, as well. Just be patient- for however long it takes- and wait for the break.
Stick with your calls and admit when you're wrong. You are an honorable trader. No reason to ever give up that accolade.
______
That having been said, I would like to add that on the back of my calls for a EURJPY short and a USDJPY long, that there will have to be somewhat- at least somewhat- of a reversion of the USD to global safe-haven status. (Yeah, I know, you guys...lay it one me...) If the yen crosses continue to move in tandem, then you know it did not happen.
When the market does finally relent (I'm sure to some phenomenally cogent mathematical formula derived at the Fed, so that they and their minions are able to gain from the move...), the USD will once again take over some safe-haven status, despite the relative interest rates backing the currencies. It has to. There is no other way. Markets don't go straight up forever, remember, no matter how it feels right now.
With the Euro falling and the yen retracing its incredible gains, that leaves on the CHieF! But the Swiss Franc is entirely too small to be a world currency that everyone can run to. (In a conspiratorial aside, one may expect the swissie to take a hit from some bad news soon. They're overdue...) And what does that leave? Why, a US Dollar ramp on all fronts, with repolarisation involving its global safe-haven status.
Yay.
Sorry but it's the only way. If this doesn't happen within the next ten trading days, I am just going to stand aside and take notes because the end result will be the grandest debacle you can ever imagine. And, my friends, you have seen nothing yet.
"?
Orly,
What a sheer coincidence!........I was replying to Rasna and scrolled down to read a few others and........
I think Rasna has it right Orly........very, very right.
In this halucinogenic phase of distorted price discovery the 'technicals' and 'fundaments' are out the window.
It's a brave new world sweetheart so if we want to survive it be ready.
Love Roro
"If the yen crosses continue to move in tandem"
Hi Orly, always look forward to your posts. Would you mind explaining what this means?
Sure. Thanks for asking.
Generally, in 4X markets today, the trade of the day has been governed by whether there is a condition of risk-on or risk-off. Pull up a chart of the SPX and compare it to the chart of the EURJPY over the last two years.
What you will notice is that the EURJPY pair has traded practically pip-for-pip with the ultimate risk asset, the US S&P 500 Index. That means that when there have been huge ramps in the stock market, indicating "risk-on," there have also been huge ramps in the EURJPY cross. In 4X, that means that the EUR is the "risky" pair, while conversely, the JPY is the "safe" pair.
Traditionally, the safest currency has been the USD; risk was traded against it; the dollar/yen carry trade flourished and all was well; when the SPX went up, the USD went down.
Lately, there has been a different scenario, one in which the USD has become the "risky" currency in lieu of the Japanese Yen and the Swiss Franc. When the SPX has traded down, the USD has traded down against the yen.
Both the swissie and the yen have exploded to the upside relative to the USD cross, as the Japanese yen and the Swiss Franc have become global safe-haven currencies. (?) Given the size of both economies (combined, even...), it is clear to see that the strength of this combination is still an untenable situation to hold global markets in check.
Thus and therefore, in order for both a EURJPY short position and a USDJPY long position to come in- by simple reasoning- there must be a reversal in the attitude of the USD vis-a-vis its risk tolerance status.
The EUR must continue to be a risk currency on the JPY- and- the JPY reverts to its more natural status as a risk currency relative to the USD.
That is what I mean by repolarisation of the USD.
In other words, keep an eye on the USDCHF.
:D
thanks much, you rock!
The markets seem to be in such a state that they can be manipulated forever. They were manipulated before (like on the anniversary of 9/11, the S&P closed at 911....a bit of unpunished hubris that gave up the game), but now it is institutionalized.
They don't need retail input, they don't need insider input, it is all cyber now. Wetware need not apply.
And it will be succesful for a long time.
World War III. That's the real message of a mere "currency war." In other words "sure, if you're shorting bonds you're going to get killed now" (maybe literally.) But if you're shorting stocks "you're going to get killed definitely literally." That's because you have massive spending on the war effort regardless of "exogenous factors" save for an actual tactical defeat of US Army forces. Since God himself decided to intervene and declare "Pakistan dead" only democrats are "decrying the loss of our loss in Afghanistan." One of them is now the director of National Security. In short "we the winners when you're a loser" (aka short sellers) now need a "war to call their own." It's gonna be "a little tricky right now" since "that particular war is involved in a peace process." Oh, yeah--and "we're leading that peace process." Moving Hillary to VP would be a start however. She's one of the most capable Secretary of State's ever and "for some that's not good either."
How long have we been talking about Fed intervention and market manipulation? I personally started alerting people to this over a year ago (even though I'm relatively new to ZH). Colleagues and our Financial Advisor looked at me like I had two heads.
So why an analyst would expect a decline, absent a Black Swan or exogenous event, is beyond me... I've been heavily short for over a year, but now will go to either the sidelines or "go with the flow" with a modest position to the long side and a reasonable stop...
The ones who really crack me up are the Elliott Wave "Analysts" (Mchugh & Prechter) who do their "wave counts" predicting turning points, seeming oblivious to the fact that that the Fed is operating behind the curtain, and the feign surprise shen the market tracks higher and they have to pull new counts out of their a$$.
I've been a technical trader for a Loooooooooooong time, but I've never seen anything like this. Technical Analysis and charts have no meaning in this environment and have fallen by the wayside along with Fundamanetal Analysis... How long this will last, I can't say and neither can anyone else. Are we on the brink? How long have we been hearing that? I'm skeptical of anyone who says this thing will implode or go over a cliff in a week or two, that the system is unsustainable and corrupt.
Here's what I believe: The market gaming by the Fed could go on for another year or two. Perhaps longer. The only thing that will stop it is a Black Swan, and maybe not even one but a couple. Am I a big time bear? Yes. But as I learned in engineering, "You can't push a rope" and "You can't pee up a stream."
Nice post Rasna........agree with your take on the 'technicals' ........and the 'fundamentals' too.
How did PIMCO put it?.......the new reality or something to that effect.
The best September stock market rally in 70 years, 70 years, 70 years.......getting dizzy, talk later. Thx
instead of trying to catch next pct up or dwn
i wonder what's your min/max for s&p500 next year from here.. jsut drop min - xxx - max- yyy ???
is that so hard my sweethart? :)
alex
stupid as ever #Support is at 1,150, 1,140, and 1,120.
also 1110, 1100, 1090 , 1080 etc...
you got my drift... somewhere between those figures you will got your support and you will proclaim yourself genius...
alx
"Gaps up are NOT a sign of a healthy robust market; they are sign of “behind the scenes” manipulation taking place in the futures night session when market volume is low:"
says it all about the fraud that is going on! and just read Denninger about the legality of insider trading for CONgress
http://market-ticker.org/akcs-www?post=168787
anyone who knows about all this fraud and deceit and then thinks they can trade in this environment deserves to lose their money
"thinks they can trade in this environment deserves to lose their money"
Agree.