Displaced Moving Average

The media is still banging the nuclear fear drum over and over again to keep people watching but the reality is that the chance of a catastrophe, at this point is very slim...

After an attempt by the BTFD brigade to restore balance to the central planning force just after mid day was thwarted by developments out of Saudi Arabia, the upward bias gave up the ghost and correlation trading took over, with complete flight to safety overtaking all novel factors, and the market closed below key technical support levels, including both the 50 and 55 DMA. In fact the market closed below the 55 DMA for the first time since September 1, 2010. The stunningly resilient Euro also plunged, as all capital flew to the 10 Year. The last time we had an open to close move as large as today's was August 11 2010, when the market was spooked by the then downgrade of the economy by Jan Hatzius. As a reminder, the only thing that saved the market in August, and why stocks took off and never looked back at the end of August, was because the Fed announced QE Lite in mid August, and then leaked QE 2. What will have it this time, nobody knows.

Keep a very close eye out on the 55 DMA. As John Noyce pointed out over the weekend, this is the most important support level for the S&P, which has been above the 55 DMA for about 132 consecutive days. Should this be taken out, and we are about 1 point away from it, the freefall below it (at least for those who believe technical analysis) will make a few heads spin. Next support: 1,174.

In addition to all the traditional technical observations on all the key crosses from Goldman's only must read technician John Noyce, which include the EURUSD, the EURCHF, the AUDUSD, the NZDUSD, and the AUDNZD, the NOKSEK, and the GBPUSD, and a quick look at 2 year USD swaps, Noyce's key technical observation has to do with a pattern emerging in the S&P vis-a-vis trendlines. To wit: "There are a few signals on the daily chart of the S&P which argue that a larger correction could be developing." The key support line according to Noyce: 1,291-1,294 on the S&P, below which the next support is the 200 DMA, which is all the way down at 1,174. The key catalyst: a market that is riduclously overbought at 129 days above the 55-DMA (128 as of the day of Noyce's report which was on Thursday). So how to play the coming correction in FX? The AUDJPY may be the best bet and the Goldman chartist explains why...

While John Noyce covers his usual fare of weekly FX technical developments, with an emphasis on the EURUSD, the AUDUSD, the USDSEK, the NZDUSD, and broadly the extremely low level of implied vol in FX (unlike commodities - we expect a switch from commodity implied vol to FX very soon), as well as a very curious collapse in correlation between G10 FX implied vol basket, the VIX and the EURAUD spot. But the most notable observation is what may happen to stocks now that the 55 Day Moving Average is in danger of being breached for the first time in 123 days. The two key support trendlines are the August uptrend since August, which is at 1,300 and the 55 DMA, which is at 1,284. Should both of these be taken out, there is no technical support until the Jackson Hole level of mid 1,000s.

The technicians out there will be salivating over the action in the ES today, which has continued to drip all day, and is now a point away from the 20 DMA at 1,311.30. In this relentless meltup, this moving average has been breached just several times since Jackson Hole. Yet the one to keep an eye out for is the 50 DMA, which has been a key support over the past 6 months. Should that level be taken out (1,282), the next level is 1,234, after which there is no support for a long, long time. Yet the most, or least for the cynics, surprising observation is that today's ES volume is about to hit the highest of the year, taking out the last January surge... which also was on major downswing. At least the banks made some money on equity commission trading, although with the Treasury curve flattening rapidly, that may not be much of a consolation.

This has to be some sick joke...

Following a strong break out this morning, gold continues its push higher and is now just $8 away from the critical 50 DMA of $1374, which had served as a major support level up until a recent round of margin collateral requirements and the CFTC's grandfathering clause spooked the weak hands in gold in mid-January. Should the 50 DMA be passed (and with the 30 DMA already in the rear-view mirror), the technicals will promptly become a tailwind again, and allow smooth sailing to resume all the way to the all time nominal highs in the $1430s.

Peak Theories Research shares their latest technical observations on the gold price chart: "after gold’s trading action over the last week or so, I have come to believe that what we’ve witnessed in gold over the last four months is that complex Head and Shoulders pattern rather than the Diamond Top or any topping pattern as I had pronounced was the case for much of January. Putting such pronouncements aside, if you’re long gold, you may be happy to hear that this pattern fulfilled itself perfectly last Thursday as I show and discuss below. More importantly, however, now that gold has held that fulfillment in what appears to be a strong crux of support for nearly a week now, I am also coming to believe that the volatile trading action of the last four months in gold is more likely than not to produce an uptrend in gold in both the near-term and in the intermediate-term. This last point is in complete contrast to what I thought gold’s technical aspects were telling us in the month of January and this is a significant change of view for me. Put most clearly, I think gold appears as though it is likely to head up in the near-, intermediate- and long-term and all such trading action is consistent with the primary bull market in gold that began in the early part of the last decade."

Like 2008, the attempts by the Fed and the Government to prop up the economy are doing nothing at all to fix the problem, merely shoving the problems under the rug for another few months until we have that final day of reckoning.

The schizophrenia at Goldman continues. After one part of the FX trading desk told clients last week to chase the EURUSD up to a 1.37 stop limit, in John Noyce's most recent update on his EURUSD views he notes: "The ST structure is not particularly clear, but we are certainly uncomfortable chasing the recent bounce and are watching for signs of the market again peaking/turning to the downside." Uh... So one part of Goldman says to chase the EUR, while another part says it is not comfortable chasing it. Well, win win. Too bad the rest of us don't have access to the discount window and if all that 5,000x margin does not work out our way, we can't go running to our former co-worker Bill Dudley (not to mention our subordinate Brian Sack who personally came over to us and introduce himself) and demand another bail out.

Abigail Doolittle, of Peak Theories Research, shares her latest updated short-term outlook on the price of gold. Doolittle's conclusion: "Caution is advised around gold in the near- to intermediate-term due to this potential near- to intermediate-term reversal. In the long-term, however, gold’s primary and bullish uptrend appears to remain very much in place." Of course, for those who day trade gold, the broken upward channel we pointed out some time ago was the indicator to watch in taking profits. For everyone else, who believes that the past two weeks' weakness is merely a blip in an otherwise relentless march by the world's central banks to reflate their problems through currency printing and devaluation, the long-term outlook is certainly far more important.

As part of the most recent observations on the boil up (melt up is so QE1) in the S&P, we find something quite interesting. A quick glance at the chart below shows the general market 45% climb since Bernanke's leak of QE2 in August, as well as the market's 10 day (purple line) and 50 day (green line) moving averages. As a point of reference the S&P has been above the 10 day average for 30 days straight, and above the 50 day average for 92 days straight. What is remarkable are some statistical findings as pertain to the average's movement with respect to the SMAs. Sentiment Trader points out that while as part of the recent surge in the S&P, the market has gone for "92 days without closing below its 50-day average, which has been matched only 17 other times since 1928." Where it gets scary, is that as pointed out, during this time market has not closed below the 10 DMA once during the past 30 days. And as Sentiment Trader notes, "this has never happened before, in 82 years of history." Congratulations to the Centrally Planned Socialist States of America: its Chairman has just made the Guinness Book of Manipulation Records.

The Rich (who control this country) do not want a strong dollar - only people who get paychecks in dollars want them to be strong but the people handing them out in exchange for labor are perfectly happy if Treasury Notes are as worthless as toilet paper.

The futures are so bright, we have to wear shades this morning.

Those shades would be blinders, like we put on horses to keep them from being distracted by reality while they race forward...