Nic Lenoir Of ICAP Sees The S&P At 380, Or Wall St. Vs. DC Round II

Tyler Durden's picture

Submitted by Nic Lenoir of ICAP

Yesterday I thought that for no particular fundamental reason the market was possibly going to temporarily base as technically it seemed we had a few important supports and exhaustion signals. That call looked good overnight until 6.30AM when S&P futures turned South and broke the 200-dma support, followed by AUDJPY which is a key risk barometer dropping through the key support at 76. At least from a day trading standpoint the game plan was clear: sell the break! Levels as clearly established as these tend not to turn out to be headfakes and today was no exception with AUDJPY trading down to a 72 handle.

The medium term trend, and I want to clear about this, remains down. I have argued for this for a while now, and risk appreciated so much from March 2009 until April in the case of US equities that the correction will run for a lot longer than this. I ultimately think we will see new lows in equities and I stand by my target of 380 for the S&P (I came up with that one in 2007, I looked stupid then, I still look stupid now, just a little less).

Short term, we have a monster support at 9,830/9,880 in the DJIA. If we break through this we trigger a big H&S in a very unstable environment and this time it won't prove a false break like it did in June 2009 when the market was still quite oversold. This level can be put in parallel with the USDCLP inverted H&S. I would also like to draw attention on the Trade Weighted Euro.

We are back at the levels seen at the bottom of the financial crisis 1.0 (we are experiencing 2.0: debt deflation takes over government support, 3.0 will be the final insult with hyperinflation once the markets have cleared at absurd lows but that's a few years down the line). Anyways, back to our observation on the EUR and USDCLP or the approaching Dow support, we are at key levels here. EUR for all intents and purposes held today, and USDCLP rejected the break out. Part of it was helped by intervention from the SNB and the BIS in the market (look up EURCHF if you need proof) which basically held the FX market. EURUSD is quite oversold (though we are still above the lows in momentum/RSI observed in 2008) here so as long as we stay above the 1.2440/1.2300 congestion (see EURUSD 10 minute chart) the risk could be that we bounce further, whether it is driven by intervention or short covering. On the upside there is no real resistance until 1.2760 and more importantly 1.3170/1.3200 which would be a big resistance if we bounce there. It seems audacious but in September 2008 we bounced from 1.38 to 1.48 in a matter of a few days before dropping 25 figures.

Equities are a bit more ambiguous than FX here. We have long said that Washington is completely bipolar/schizophrenic. The US economy works as long as the upticks in financial assets allow the wealthy to create service jobs for the not so wealthy and not so educated. So we need stocks going up at all costs under that model. However overhauling the financial industry and putting constraints on leverage is drastically bearish stock. Let's pause for a second: we are in the middle of debt deflation with horrible difficulties in the USD funding market. Putting limits on bank leverage will kill lending, and that is only going to make matters worse. Therefore we are fighting fire with fire, and I don't think there is a way to resolve this problem other than more debt deflation and asset devaluation. Stocks responded exactly along those lines to today's votes into the close and after hours with renewed selling pressure. It seems central banks are not only fighting a liquidity drought, they also have to fight the consequences of the political witch hunt against the financial system. Yes there are a lot of reforms needed, but I am just saying that you need to pick your poison. Here Washington has placed a higher priority on its vendetta against Wall Street as it has to the path our economy is on: buyers beware.

Since the financial industry overhaul is long term a big negative for the US, I feel we could see a bit of a correction for the USD, which won't be sustained because of the debt deflationary forces at work. But that could be were stocks keep underperforming while the FX market does not validate this weakness for a few days. Fixed Income markets also indicate Treasuries are on resistance levels and exhibit some exhaustion but are waiting for a catalyst to correct.

If there is a bottom line tonight it is that politicians have been setting up the very system they are fighting right now, not realizing that our workforce is not educated to compete, burried in debt, our costs are too high, and that for demographic and structural reasons our  economy is in terrible shape. With the decision made to pin the housing excesses and the excessive leverage in the system on Wall Street, the government has set up the stage for deflationary forces to work their way eating up the value of financial assets in a way that people are greatly underestimating. Wall Street needed a cop, but it got a dictator.

Good luck trading,



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anynonmous's picture

I saw Tice on Bloomb earlier - he stands by his 400 call (great day for him to be holding court at Lexington Ave)

ghostfaceinvestah's picture

I was just wondering about what Tice is saying - thanks.

spartan117's picture

S&P500 at 380?  Um, damn.  The only thing I'd be buying at that point would be bullets.

jdrose1985's picture

S&P500 at 380?  Um, damn.  The only thing I'd be buying at that point would be bullets.


If you don't have bullets already you might not make it to see 380 ;) And don't forget the spam.


Don't worry; it's not the end of the world


jeff montanye's picture

the u. s. stock market already had an 80% decline in real terms from 1965 to 1982 and bullets weren't needed.  same for 1929 to 1932 and they didn't have food stamps.  however this time does give me a queasy feeling nonetheless.  one reason is the elites are even more corrupt and feckless than formerly.

mikla's picture

Actually, I'm with him on that.


  • Long term:  down.
  • Medium term:  down.
  • Short term:  ? (depends on how much Viagra Ben put in his coffee this morning, but I think the market is picking up steam [true capitulation] and is probably down also)
  • Wildcard:  MASSIVE printing ==> Hyperinflation (may be years away).

We are STILL massively over-bought, no one can service their debts, are leveraged up to their eyebrows, and we still need to see the unwind in positions (like a quadrillion in derivatives).

Here's the acid test:  Would you give $1 to GM, thinking that they could earn a profit on it?  (Not a chance.)  Similarly, would you give $1 to the S&P500, thinking they could earn a profit on it?  (Not a chance.)  That means you need to sell until the answer is "yes".

HFT1's picture

Mr Spartan I believe bullets are good but my pic explains what you should try to obtain for now. And for all you gold crazies it will hit 680 during deflation and then CRAZY inflation somewhere around gold 500-600 area. Another 150 pips last pm and I would be watching aud/usd as well as aud/jpy and ignore the euro. Reason being when the 400mm buy cam across the desk I can only say I am glad I was FLAT, no position. I do believe this is inviting a Soros type trade to force it to even steven with the $. That 400mm is intervention and i want no part of it yet...

Pure Evil's picture

There is a very easy way to return from a casino with a small fortune: go there with a large one." ~ Jack Yelton

mr brincq's picture

calculate this: s&p div yield is 1.9%....average div yield over 100 year period till 1982 was 5%...Do the math and you end up with +/- 400 for the S&P 500....380 makes a lot of sense

rich_maverick's picture

That assumes that the cash flows to pay the dividends will be there.  If the economy tanks, profits and cash flows will suffer.  As a consequence, dividends will also suffer.  We may have yield of 3% and S&P 400 and still believe the market is too richly priced.



mr brincq's picture

you are absolutely right.....for more long term information i suggest to go to is now getting late in the market slide the slope of hope

Quantum Nucleonics's picture

The problem with that analysis is taxes.  Lowering of capital gains taxes, which were 20% in '82 from nearly 50% in the late 70's, created a huge incentive not to pay dividends which were taxed at marginal rates.

HFT1's picture

Cash Bitches!!

abalone's picture

Who's your daddy! King Dollar

faustian bargain's picture

3.0 will be the final insult with hyperinflation once the markets have cleared at absurd lows but that's a few years down the line

I'd be interested to learn how the 'few years' estimate is arrived at. (Not joking...I have no idea but would have guessed it to happen sooner).

legerde's picture

I believe a few years because I think the majority of society is not aware.  American "Idle" has a few more years before it gets cancelled.  

In seriousness, when a fiat currency used to get created, it might last 20 years (See John Law).  The Fed has been fighting gold since its inception and we are approaching 100 years.   The central bankers are smart and can spin many plates on sticks.  I think they are losing control of things but they have a printing press and lots of power so I have confidence that they can keep the plates spinning a while longer.


cougar_w's picture

Hyperinflation is always a failure of confidence, unlike it's cousin inflation which is a monetary tool. It takes a while for people to lose confidence; they have to lose a lot of other things first. Their faith in money is the last thing to vanish.

So how far are we from having losing confidence? Well there is a lot to vanish on the way there. Freeways, restaurants, television, ice cream sundaes. Stuff like that hanging around gives a sense of normalcy. Even petty crime is normal and reassuring. But once "strange shit" starts to happen and "normal shit" doesn't work, the bloom is off the rose.

jal's picture

Will the S&P break with its trend and be down on monday?


JW n FL's picture

I agree, I see the piggy backers / trendies getting caught this go round... but to be clear mostly just to insure Congress and the Senate get the message... you see the algos did everything they could this afternoon, but could not hold the line... I am laughing while typing!


Wake up calls all around, smart people getting punished...


Or, to the moon and everyone gets a free ride and The Congress and Senate are to be trusted by Wall Street?! Still laughing!

ZackAttack's picture

Good thing that didn't happen a year ago because S&P 380 would pretty much end all the insurers with annuities linked to the S&P.

Thankfully, a year later, they're in such good shape that they could pay back the TARP, so you just *know* they were smart enough to take all this risk off their sheets.

Rainman's picture

An S&P of just 750 would be enough to knock the snot out of the public pension funds. Even they couldn't paper over a disaster loss like that over 30 years. They've been sniffing those speculative green shoots for years and they'd be buyers on the way down for sure.

Mr Lennon Hendrix's picture

Dow Jones fair value 1182.40

AccreditedEYE's picture

Awesome point. And they'll be no running to the States to fill the holes. It's time for a very hard reality to start setting in.

JW n FL's picture
by ZackAttack
on Thu, 05/20/2010 - 17:17

Good thing that didn't happen a year ago because S&P 380 would pretty much end all the insurers with annuities linked to the S&P. Thankfully, a year later, they're in such good shape that they could pay back the TARP, so you just *know* they were smart enough to take all this risk off their sheets.


                  Paying the TARP monies back to the American Tax Payers, the 10% interest money! by using the 0% FED window... is not good for the Tax Payer(s) and is NOT! us getting paid back... We had 10% interest comig in now we have 0% interest going out...


its a not a 105 repo scam, BUT IT IS WORSE!


Fucking GREAT! Deal for us! Thank God for the Lobby!


The Banks are using profits to pay for their Lobby? not the 0% Fed Window?

**** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****

So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?


hambone's picture


380 on the S&P does sound pretty stupid...but only because human greed allowed 1500 on the S&P which should have never happened.  Greed and fear (or leverage and par) represented in their ultimate numerical values.

Psquared's picture

The markets will be shut down and we will have extended holidays long before we reach 380. I am thinking by summer's end we will be looking at SnP <900 and then rally in the fall. Of course, I am assuming a lot of things don't happen that could happen which would make SnP 380 very possible.

Duesco's picture

Helicopter Ben will personally kill thousands of traders before he lets the S&P get to 380.

Dr o love's picture

Coming soon to a theater near you.


Thai declares Thursday, Friday bank holidays


gimli's picture

Are we going to bounce tomorrow from...........

a. ppt

b. Short covering

c. OE chicanery

d. None of the above --- straight to the bottom of the oily Gulf of Mexico

HarryWanger's picture

I went long SDS 33.15 and sold my long equities, as I said yesterday. I believe we will see a bounce off the /ES at 1055ish overnight. I may sell if we bounce at the open on Germany vote and/or bank reform solidifying. 

However, I firmly believe we are going lower after a bounce to 1100 area. My target is 850 by September before rallying to end of year.

Coming Down in Powdery Sparks's picture

You are truly a cretin.  You've been long the whole way down...

akak's picture

"I went long SDS 33.15 and sold my long equities, as I said yesterday. I believe we will see a bounce off the /ES at 1055ish overnight. I may sell if we bounce at the open on Germany vote and/or bank reform solidifying."

Harry, your wife told me in bed today that in the last ten years you have never been long even once.

But speaking of your wife, and a bounce ....

I sure do like her head and shoulders, and her double top, and her smooth and supple trendlines.

For her part, she seemed to appreciate my ascending wedge and parabolic blowoff!


SteveNYC's picture

Faaaarrrrkkkk me!!!! I just spat Lindt chocolate and Spanish red from the Riojas region on my screen. Akak, that was pure fukin gold!!

Takingbets's picture

You dog!!, I blew soda from my mouth to my iPhone reading your whitty post. Lol!!!!!!!

Village Idiot's picture

Hey TB and Steve -

Are you guys married? No matter what you may think of the guy - don't bring a man's wife in to the mix - unless he invites you to.  Stupid.

Takingbets's picture

Well in my heterosexual marriage I happen to be the wife, and yes I thought it was funny!

It's a joke and we all know Harry has very thick skin, if he dident he wouldent have been posting his ridiculous bull market commentary on this site, IMHO.

akak's picture

I just hope that Harry is willing to return the watch I left on the nightstand.  Damn, that's like the fourth time I've done that!  You'd think I'd learn by now!

Sorry for getting the sheets messed up too, Harry --- l'amour has a way of doing that.

Village Idiot's picture

That's what I get for speed reading. AKAK, Steve and TB aren't the turds in the punch (my apologies) - you are.  Hey big man, if you think you are being funny on a website, I dare you to take your act to a local bar of your choice and try it out. You won't be laughing - guaranteed.  Grade A punk.

akak's picture

Wow, are you trying to live up to your moniker here?

It's called a JOKE --- as in humor. You know, "h-u-m-o-r"?

Try it sometime, you may like it.

Village Idiot's picture

Just the village idiot, buddy. You are just a freakin' idiot if you think that kind of talk is a joke.  The guy is a target - his wife is not. Have nice day.

akak's picture

You seem to be overstressed.

Have a drink, go for a walk, or play with one of your kids or your dog.

I can't understand why you are getting so bent out of shape over a harmless and absurd little joke.  And worse yet, I see there are four other prudes who agree with you.

Some people just have NO sense of humor!  I'm guessing you're from the Bible Belt.

Village Idiot's picture

You don't get it.  Walk on.

Village Idiot's picture

TB, glad you responded - I lumped you in when all you did was laugh.  My apologies.  But seriously, that one goes too far, at least that's the way I feel. Isn't it interesting that a man might take more offence than a woman - guess it's a man thing.

Takingbets's picture

Thanks but I really dident need an apology.

I only have one question, do we actually know if Mr Wanker is even married? If not, your getting upset about this is all for not.

Village Idiot's picture

Call it a matter of principal, then. I don't think there are very many people on this site that really would want to see the conversation digress into personal attacks on one's family life.  I know I woudn't want to. keep that popcorn coming - gonna be another fun day.  Cheers.

Mr Lennon Hendrix's picture

Walled St runs DC.

The movements have never been more volitile.  Silver is saying it wants to run for the hills, and dow looks like it is donzo. 

Good luck trading!

Check out the move from 10:30

Silver wants out like Germany.