Fibonacci

While the off-the-lows mentality of today's market performance was heralded by most as a signal that the BTFD'rs are back, we gently remind them that the Nikkei (futures) did not bounce at all... In fact S&P futures bounced to a rather eerily perfect 38.2% Fibonacci retracement of the overnight plunge and then faded into the close. All the major indices managed to get back to unchanged on the day (but the S&P 500 was the last to make it and instantly turned around once it did). Credit markets opened gap wider and did not bounce back anything like stocks. Treasuries sold off modestly from their pre-opening levels then drifted lower in yield into the close (ending down 2-3bps on the day but up 6-7bps on the week). The USD weakened most of the day and commodities gained on the day with gold and silver now up over 2% on the week. VIX fell from the open to the close but ended the day higher as we suspect hedges were lifted and exposure reduced into the bounce.

QE Halt Would Be 'Too Violent' for Market: Fed's Fisher

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">Jewellers across the world are seeing a surge in jewellery purchases because consumers are taking advantage of the price drop and purchasing investment pieces that will grow in value over time.

#333333; font-size: 12px; line-height: 1.6em; font-family: Arial, Helvetica, sans-serif; background-color: #f8f8f9;">In the USA with Mother’s Day approaching this weekend, consumers like Whitney Court who would normally buy flowers instead wants to purchase something that won’t wilt: a silver necklace. 

When a 'blog' puts the words Fibonacci, Gold, and Stocks in the same post, it well and truly earns its 'tin-foil-hat'-wearing "digital dickweed" honors. And so, we present, for the edification of all those who believe in gold as the only sound numeraire for judging value; for those who believe it's never different this time; and for those who believe in dead-cat-bounces; the Dow in Gold in the 30s, 70s, and Now...

In all the excitement over gold, silver has been largely ignored or forgotten. Today, it was the "poor man's gold"'s turn to stae a dramatic comeback posting its biggest single-day jump in 15 months. Having now retraced the Fibonacci 38.2% level of the record plunge, it appears $25 is th enext target - which is around 50% retracement levels.

For the Fibonacci fans out there, here is something rather stunning from Newedge's Brad Wishak. In the chart below, the strategist looks at the duration in days of each stock rally leg since the 2009 bottom. What is rather amazing is follow through between one rally and the next in terms of, you guessed it, the Fib 61.8% retracement. As Wishak comments: "obvious is the diminishing marginal utility of each bath of QE manifesting itself in shorter and shorter rallies. Less obvious is the underlying rhythm of the start and stopping points. Applying the 61.8% retrace to time, called the the most recent September stock highs within 4 days. And projecting this pattern forward, we're now just around the corner from the next 61.8% top, which hits on January 22." Because if in a centrally-planned world DeMark indicators still have any relevance, then certainly so does Fibonacci.

The yellow metal soared 4.9% in euros in one week from the 11 week low set November 2nd and has since fallen 1.3%.  The rebound from the November dip means prices should recover to reach the all-time euro high set last month, before rising to the point-and-figure target at 1,395 euros, said the bank’s research.  Point and figure charts estimate trends in prices without showing time. Gold may then reach a Fibonacci level of about 1,421, the 61.8% extension of the May-to-October rally, projected from the November low, Commerzbank wrote in its report on November 13th which was picked up by Bloomberg. Fibonacci analysis is based on the theory that prices climb or drop by certain percentages after reaching a high or low. “What we are seeing is a correction lower, nothing more,” Axel Rudolph, a technical analyst at Commerzbank in London, said by e-mail Nov. 16, referring to the drop since November 9th.  Rudolph remains bullish as long as prices hold above the November low at about 1,303 euros.  Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

The much anticipated Greek vote on "self-imposed" austerity came, saw and passed... and nothing: the EURUSD is now well lower than before the vote for one simple reason - the vote was merely a placeholder to test the resiliency of the government, which following numerous MP terminations, has seen its overall majority drop to 168 of 300, which includes the members of the Democratic Left who voted against the Troika proposal. Which means any more votes on anything split along austerity party lines and the vote will likely no longer pass. And, as expected, Germany already picked up the baton on kicking the can on funding the Greek €31.5 billion payment (due originally many months ago) when Schauble said that it will still be too early to make a Greek decision net week.  Market-wise, Europe is limping into the US open, with the EUR weaker again due to a report that Spain may not seek an ECB bailout this year (as said here over and over, Spain will not seek a bailout until the 10 Year SPGB is back at or above 7%). Paradoxically, Spain also sold €4.76 billion in 2015, 2018 and 2032 debt (more than the expected €4.5 billion) at muted conditions, thereby the market continues to encourage Spain not to request a bailout, although this may not last, as promptly after the bond auction Spanish debt tailed off, the 2Y and 10Y both sold off, and the Spain-Bund spread is back to 445 bps, the widest since October, and means Spain can finally be getting back in selloff play: and probably not at the best possible time just as everything else, which was in suspended animation until the Obama reelection, also hits the tape. Today we get two key, if largely irrelevant, central bank decisions come from the BOE and ECB, both of which are expected to do nothing much. Finally, the most important event going on right now, is the Chinese Congress. For those who missed it, our previews are here: The Far More Important 'Election' Part 1: China's Political Process and The Far More Important 'Election' Part 2: China's Market Implications.

Life imitates math.

The markets are all about timing. In this case, 55 weeks.

If there is one dominant consensus in the financial sphere, it is that the Federal Reserve's $85 billion/month bond-and-mortgage-buying "quantitative easing" will inevitably send stocks higher. The general idea is that the Fed buys the mortgage-backed securities (MBS) and Treasury bonds from the banks, which turn around and dump the cash into "risk on" assets like equities (stocks). This consensus can be summarized in the time-worn phrase, "Don't fight the Fed." This near-universal confidence in a QE-goosed stock market is reflected in the low level of volatility (the VIX) and other signs of complacency such as relatively few buyers of put options, which are viewed as "insurance" against a decline in stocks. The usual sentiment readings are bullish as well.

But what if QE fails to send stocks higher? Is such a thing even possible? Yes, it does seem "impossible" in a market as rigged and centrally managed as this one, but there are a handful of reasons why QE might not unleash a flood of cash into "risk on" assets every month from now until Doomsday

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Leonardo Fibonacci (1170-1250) may have just stuck his 'golden-ratio-based' fork in the equity market's rally. As the following chart shows, the diminishing marginal utility of Quantitative Easing's wealth effect has followed a rather remarkable pattern... and today marks the next turning point.

Do you believe in miracles? Well, all those managers who were long the QE-sensitive darlings of Financials, Materials, and Consumer Discretionary into the month can breath a collective unchanged sigh of relief - thanks to last week's Draghi drag higher. The Energy sector managed a stupendous 4.9% gain on the month. The S&P 500, Dow, and Nasdaq all finished about 1-1.4% higher on the month (while Dow Transports ended -2.3%) as we came close to some Hindenberg Omens in the last few days. Today's market felt like the start of a sell-the-news day as we leaked back to the edge of the Friday cliff in S&P 500 e-mini futures (ES) - with an after-day-session-close snap down to catch-down to where risk-assets had broadly been biased all day - amid huge volume (leaving ES below its recent swing highs and Fibonacci levels). Commodities generally slid lower but WTI led the way ending down over 3% from Friday's close. Gold, Silver, and Copper all slid even as USD slid lower too. Treasury yields fell back retracing about half of the post-Draghi sell-off. VIX ended testing 19% into the close, up almost 1vol as the term-structure flattened ahead of the events of the next couple of days. The massive rip in volume at the close (and 5pt drop in ES) suggest plenty of short-term exits ahead of the fun-and-games of the next two days and certainly Treasuries were sending similar derisking signals.