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Guest Post: The Market's Getting A Wedgie

Tyler Durden's picture




 

Via Charles Hugh-Smith of OfTwoMinds blog,

 

The "risk-on" stock market is getting a wedgie, and so is its "risk-off" counterpart, the U.S. dollar.

The U.S. stock market is getting a wedgie, and so is the U.S. dollar. That matters, as wedges tend to break up or down in a big way. Stocks are a "risk-on" trade, the dollar is a "risk-off" trade, so they are riding a see-saw with wedgies. Yes, I realize this is an unpleasant image, so let's turn to the charts.

A wedge is characterized by a compression of price into a narrowing triangle as Bulls and Bears battle over who will lead the next trend. The wedge is clearly visible on a daily chart of the S&P 500 (SPX). Note the loss of momentum in the recent uptrend as RSI, the Bollinger bands and the 20-day moving average (MA) are all trending down.

We see two wedges on this weekly chart of the U.S. dollar index (DXY, or on stockcharts.com, USD). The first wedge was traced out between May and August 2011, and it broke to the upside in early September 2011, resulting in a 10% gain in the next few months.

Now another wedge has been traced out around the key long-term line of support and resistance around 80. The direction of the break may be telegraphed by MACD, which is solidly above the neutral line and the stochastic, which is also trending higher.

Here is a daily chart look at the same wedge. Even the MACD has formed a wedge of consolidation-indecision.

Since the SPX is risk-on and the dollar is risk-off, then any move in one will likely be reflected in the other. These wedges are nearing the point of decision, so next week might be slightly more interesting than the previous three weeks.

 

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Fri, 04/20/2012 - 13:40 | 2361696 lemonobrien
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i just bought golds and silvers, don't like no wedges formations.

Fri, 04/20/2012 - 13:43 | 2361709 dereksatkinson
dereksatkinson's picture

Gold and silver have the same wedge formation but extremely negative sentiment.

Fri, 04/20/2012 - 13:47 | 2361726 CClarity
CClarity's picture

Financials and treasuries not signaling the happiness of the broader equity indices.  Something else afoot.  I expect an ugly Monday.

Fri, 04/20/2012 - 13:57 | 2361773 lemonobrien
lemonobrien's picture

yeah, but i couldn't wait. been waiting for gold to crash for 3 months. i like buying the dips.

Fri, 04/20/2012 - 14:17 | 2361877 Mugatu
Mugatu's picture

Natural gas has had extreme negative sentiment for the last 2 years but that has not helped it one bit.   

Fri, 04/20/2012 - 16:36 | 2362313 xela2200
xela2200's picture

Everybody is getting a wedgie.

Fri, 04/20/2012 - 17:26 | 2362446 ihedgemyhedges
ihedgemyhedges's picture

Technically, the Talent Manager for BIS is getting a "cameltoe"..........

Fri, 04/20/2012 - 20:29 | 2362823 CURWAR2012
CURWAR2012's picture

LMAO

Fri, 04/20/2012 - 20:29 | 2362824 CURWAR2012
CURWAR2012's picture

LMAO

Fri, 04/20/2012 - 13:42 | 2361697 SheepDog-One
SheepDog-One's picture

OH Im sure the wedge will break wildly to the upside, why the hell shouldnt it? Hell we've got rumors of QE NEW to unleash to pop it all back over the all-time previous bubble top. Its a celebration, bitchez, etc etc.

Fri, 04/20/2012 - 15:40 | 2362148 Spastica Rex
Spastica Rex's picture

Until things come apart for real, I don't see how you can be wrong.

Fri, 04/20/2012 - 23:03 | 2363072 CPL
CPL's picture

I concur SheepDog. All we have seen for nearly 5 years is the same retaliation of fist fulls of worthless fiat.  

 

Long Oil, Silver and Gold.  Oil first and foremost now.

 

Fri, 04/20/2012 - 13:40 | 2361698 beechmtnski
beechmtnski's picture

thats not a wedge, its a consolidation triangle, your RSI divergence is invalid without a new.....

Fri, 04/20/2012 - 13:40 | 2361700 dereksatkinson
dereksatkinson's picture

Add the HUI and gold to the list of assets doing the wedge...

Fri, 04/20/2012 - 13:40 | 2361701 punxsutawney phil
punxsutawney phil's picture

Check out the aapl insider trading from march.  Timmy said  "YOURS" at $600

Fri, 04/20/2012 - 13:42 | 2361703 graymnzrc
graymnzrc's picture

Great, I am traveling out of the country next week. The last time I traveled was last summer when the market was whipsawing 200+ every day.

Fri, 04/20/2012 - 13:41 | 2361705 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Time for an edge formation.

Fri, 04/20/2012 - 13:44 | 2361712 maxw3st
maxw3st's picture

Noticed that in the EURUSD at the beginning of the week. On a weekly chart, I've been following the one the DX_F is making since the end of last Aug. Somewhere in the next 2 months we'll see a break-out.

Fri, 04/20/2012 - 13:46 | 2361719 Rich Bagg
Rich Bagg's picture

The fix is in fellas.  Stocks going to all-time highs.  Nominal GDP and retail sales are at all-time highs.  Corporate profits at all-time high.  Interest rates at all-time low.

 

Yes it's that simple.

 

 

Fri, 04/20/2012 - 13:48 | 2361733 LawsofPhysics
LawsofPhysics's picture

in that case, so is inflation.

Fri, 04/20/2012 - 15:32 | 2362122 I should be working
I should be working's picture

You say nominal GDP is at an all time high like it's some incredible accomplishment.  This is the worst recovery out of a recession ever, yes worse than 1932 in terms of time to get back to prior peak GDP.  What does that say about growth going forward?

It's not just where we are, it's where are we are going and how fast.  But I have to say, I'm not really that taken with loaning the government money at 3% interest on a 30 year bond.  The fed has totally screwed the entire yield curve, at this point it's stocks or cash.

Fri, 04/20/2012 - 16:04 | 2362219 astoriajoe
astoriajoe's picture

astoriajoe ----->>> all time highs.

Happy 4/20 everyone:)

Fri, 04/20/2012 - 21:27 | 2362917 MeelionDollerBogus
MeelionDollerBogus's picture

yuuuup

my oil prediction chart pretty much tells the story, combined with the oil->dow mapping of prices from high correlations.

 

Fri, 04/20/2012 - 13:47 | 2361728 midgetrannyporn
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OT - Boycott Windows 8! Linux is free and more secure! Ballmer is a fascist monopoly pig! UEFI secure boot is an OS anti-competitive ripoff! Don't pay the microsoft tax!

Fri, 04/20/2012 - 15:43 | 2362154 Spastica Rex
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That was really weird, but yay! and +1 for you.

Fri, 04/20/2012 - 16:09 | 2362234 Bunga Bunga
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Ubuntu with MAC OS X Theme. Free Apples!

Fri, 04/20/2012 - 13:50 | 2361742 rumblefish
rumblefish's picture

risk-off

Can someone explaing this term?

Fri, 04/20/2012 - 13:56 | 2361765 Transitory Disi...
Transitory Disinflation's picture

yes, it is the opposite of risk-on

Fri, 04/20/2012 - 14:03 | 2361771 LouisDega
LouisDega's picture

It means the market is up, But its just an illusion. Do not attempt to adjust the picture on your Apple display. You are in the Outer limits

Fri, 04/20/2012 - 14:04 | 2361800 Nobody For President
Nobody For President's picture

Short answer: Risk off is a move away from assets percieved as 'risky' to assets percieved as less risky. Usual meaning is a broad movement away from stocks and into bonds (but there are also many other financial posibilities involving puts and calls and option plays, etc.).

I suspect English is not your first language - for general financial definitions, try here:

http://www.investopedia.com

although 'risk on' is not defined.

Or ask here on ZH - someone will usually pitch in if they know you are sincere, and not just messing with us.

 

 

Fri, 04/20/2012 - 14:15 | 2361863 midgetrannyporn
midgetrannyporn's picture

It takes the risk off the billionaires and puts it on the taxpayers.

Fri, 04/20/2012 - 13:50 | 2361745 carbonmutant
carbonmutant's picture

Wedges typically resolve themselves in the direction of the trend...

Fri, 04/20/2012 - 14:07 | 2361819 SheepDog-One
SheepDog-One's picture

So then down?

Fri, 04/20/2012 - 15:10 | 2362045 carbonmutant
carbonmutant's picture

That's what it's looking like this afternoon...

Fri, 04/20/2012 - 16:42 | 2362330 xela2200
xela2200's picture

Well put. But not while on a correction.

Fri, 04/20/2012 - 13:52 | 2361749 Buzzworthy
Buzzworthy's picture

Technical chart analysis defined - an obsolete art invalidated by the market distorting influence of central banks.

Fri, 04/20/2012 - 13:52 | 2361758 carbonmutant
carbonmutant's picture

Algos still trade in channels...

Fri, 04/20/2012 - 14:09 | 2361826 Buzzworthy
Buzzworthy's picture

True ... and in thousands of multiples faster than any of us can type in a password, sometimes driving the price of a target stock well below technical support lines and 50 DMAs.

Fri, 04/20/2012 - 13:53 | 2361753 hedgeless_horseman
hedgeless_horseman's picture

 

 

Looking like BAC has plenty of support....around $5

Fri, 04/20/2012 - 17:05 | 2362385 duncecap rack
duncecap rack's picture

BAC and MBIA both got hit today on news that they are meeting in court next month. I am some glad I held onto my April BAC puts to the last minute.

Fri, 04/20/2012 - 13:56 | 2361768 Everybodys All ...
Everybodys All American's picture

Bang the futures higher in the morning on nothing fundamental. Sell the hype to the sheep all day long. Same story different day.

Fri, 04/20/2012 - 13:57 | 2361769 dbTX
dbTX's picture

Not to worry. Turn the charts upsidedown and everything looks great.

Fri, 04/20/2012 - 13:56 | 2361772 caerus
caerus's picture

close to possible h&s confirmation in aapl, pcln, others

Fri, 04/20/2012 - 13:57 | 2361774 Silversem
Silversem's picture

I am long  junior gold and silver mining shares and i am thinking about taking a position in USD with cfd's once it breaks out of the wedge.

Fri, 04/20/2012 - 13:57 | 2361775 eddiebe
eddiebe's picture

So are you saying that the dow and the dollar will go up or down? Wow.

Fri, 04/20/2012 - 14:03 | 2361803 Cruel Aid
Cruel Aid's picture

Going up or down in the same direction would be the Wow.

Fri, 04/20/2012 - 16:25 | 2362283 scatterbrains
scatterbrains's picture

or down and up in different directions leading no where would be pretty cool too.

Fri, 04/20/2012 - 14:00 | 2361786 sabra1
sabra1's picture

nothing worse than receiving an atomic wedgie when you've got a bad case of bleeding hemorrhoids! 

Fri, 04/20/2012 - 14:02 | 2361792 ZippyBananaPants
Fri, 04/20/2012 - 14:10 | 2361833 DavidC
DavidC's picture

Just a thought, but with Facebook IPO coming along in May, will the banks et al let the market fall before then? They'll want to suck as many 'muppets' as they can in to it.

DavidC

Fri, 04/20/2012 - 14:11 | 2361841 AmazingLarry
AmazingLarry's picture

What if it forms a wedge inside a wedge inside a wedge? Which wedge wins?

Fri, 04/20/2012 - 14:39 | 2361960 Zero Govt
Zero Govt's picture

the biggest one

Fri, 04/20/2012 - 14:14 | 2361844 Nobody For President
Nobody For President's picture

If you are reading Ekathimerini, you will probably get the word first...

And the picture of Greece Fin Min and now PASOK leader Evangelos Venizelosin heading the article you cite is interesting. This is the man that has been preaching 'austerity' to the the Greek people for at least the last 8 months - tirelessly, day in and day out - austerity, austerity, austerity - to get the bailout(s) from the Troika.

So how much 'austerity' has this obese sob been practising? Just take a look:

http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_30778_20/04/2012_43...

 

How any Greek citizen can believe a work of 'austerity' out of this guy's mouth is totally and completely beyond me.

 

Fri, 04/20/2012 - 14:16 | 2361869 XtraBullish
XtraBullish's picture

BUY everything in advance of the Obamarama landslide. The Planner-in-Chief is going to heal the middle and working classes by stickin' it to dem rich Wi-Fo's! Yee-hah!

Fri, 04/20/2012 - 14:20 | 2361881 TradingJoe
TradingJoe's picture

That's a triangle to me! Wedges look different! Downward wedges are bullish and vs! Triangle shown can be anything, up, down or more sideways!

I "predict" a sideways to DOWN move, in a "big"way :))!

Fri, 04/20/2012 - 14:19 | 2361885 Metalredneck
Metalredneck's picture

The ol' pump & dump is looking more plausible every day.

Fri, 04/20/2012 - 14:26 | 2361909 geewhiz190
geewhiz190's picture

If, and it's a big if commodity demand is in fact slowing in china, this does not bode well for the aussie dollar, the loonie, or the real-all commodity based currencies.. further, if the BOJ does in fact expand it's balances sheet the yen will resume it's down move vs. the dollar.  that leaves the magical euro and the equally magical british pound to keep the dollar basket from rising. sentiment on the dollar is pretty lousy, so a break out to the upside would probably surprise more than a bigger sell off. i don't think i'd want to be short the dollar here, but figuring this is like an algebra equation with 50 variables of which maybe 2 are known-sorta

Fri, 04/20/2012 - 14:27 | 2361920 mayhem_korner
mayhem_korner's picture

 

 

I really fear that WB7 is going to go to town on this wedgie thing.  Hopefully he keeps Merkel off the rolls...

Fri, 04/20/2012 - 14:33 | 2361944 LongSoupLine
LongSoupLine's picture

 

 

 

 

This wedge will relieve itself in whatever direction the Fed, other CB's and their profit puppet PD's decide...period.

Fri, 04/20/2012 - 15:39 | 2362145 SheepDog-One
SheepDog-One's picture

DOW 50,000 bitchez! By mid summer!

Fri, 04/20/2012 - 14:34 | 2361945 Rich Bagg
Rich Bagg's picture

Question:  What investment is currently in a 9 year bull market, doesn't pay a dividend and never will, has a NPV of future cash flows = $0 and has an infinite p/e ratio?

 

 

Fri, 04/20/2012 - 14:51 | 2362004 Venerability
Venerability's picture

Tyler,

Since you have no Eurozone story near the top of the queue, I may as well post this here.

My take on the French elections. I think this is a real possibility and welcome comments from thoughtful - not BOO! BOO! BOO! - posters:

The situation is really very interesting.

Since a substantial portion of the French media, which is still somewhat left-leaning, wants Hollande to win, their coverage may now be much more biased than the actual facts would warrant.

For one thing, detest her jingoism as anyone sane must - (although we blithely embrace similar jingoism in the US!) - Le Pen is said to command as much as 20 percent of the electorate, maybe more in influential rural areas and among voters over 50, who tend to flock to the polls in higher numbers than the young. These voters detest Hollande and will vote for Sarkozy in Round Two, even though they dislike him, too.

Second, Melenchon has made some extravagant and off-the-wall remarks. He is not a boon to Hollande at this point, but rather an albatross around his neck.

That leaves Bayrou, the candidate of the intelligentsia, including much of the financial and media intelligentsia. (I would suspect he will get a large portion of the college professor vote.) And while both Hollande and Sarkozy have cozied up to him, Sarkozy has said he would name him Prime Minister if elected to a second term. Maybe between Round One and Round Two, he will go even further than that, offering Bayrou and his moderates a number of key government positions - the Finance Ministry? the Foreign Affairs portfolio? Labor?

This all affects the Markets, because if his fellow Europeans feel Sarkozy can pull a rabbit out of the hat, they may very well mobilize their PPTs to support him the next two weeks with higher European markets across the board and a higher Euro.

Fri, 04/20/2012 - 15:39 | 2362144 SheepDog-One
SheepDog-One's picture

So they might go all-out to support it for 2 weeks, for a rigged election, and then what?

Fri, 04/20/2012 - 16:58 | 2362366 AU5K
AU5K's picture

Bearish formations are bullish.  We are in bizarro world, remember.

Fri, 04/20/2012 - 17:56 | 2362529 Poor Grogman
Poor Grogman's picture

It took a lot of fiat and algo time to create that technical signal...

The trap is set

The clock is ticking.

What will the sheeple do?

Fri, 04/20/2012 - 18:08 | 2362566 ThisTimeIsDifferent
ThisTimeIsDifferent's picture

Nothing new. Sell in May and go away.

Elliott:

It's impulsive 5 waves down from early April.

From April 9 to now ist corrective overlapping waves.

Next should be a the biggest impulse wave down (wave 3).

 

Fri, 04/20/2012 - 20:44 | 2362856 Dirtt
Dirtt's picture

“Simplicity is the ultimate sophistication.” 

Sell in May and go away? How poetic? Where have I heard that before? Usually from the LameStream Media in August on any given year. 

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