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Guest Post: Storm Pennants Are Flying In Stocks And The Dollar
Submitted by Charles Hugh Smith from Of Two Minds
Storm Pennants Are Flying In Stocks and the Dollar
If we look only at charts and ignore the "news," we see storm pennants are flying in both the stock market and the U.S. dollar.
The stock market is wearing a T-shirt that reads, "I broke a downtrend and all I got was this lousy pennant." Having just returned from nine glorious days camping in Washington State, I have no idea what "news" has effected the markets ("news" in quotes because the news is managed for its PR effect--the real news is what has been suppressed lest it undermine the Status Quo's carefully cultivated propaganda campaign), and so I have marked up the chart of the Dow Jones Industrial Average (DJIA) and the U.S. dollar without the "benefit" of the news flow.
What pops out is a big fat pennant in both charts. Pennants can be continuation patterns--mere way points in a continuing up or down trend--or they can indicate points of trend reversals.
The key feature of a pennant is the compression of price into a narrowing channel, as the relative indecision of buyers and sellers alike causes price to fluctuate less and less.
At the apex of the pennant (note the triangle shape), the irresolution is resolved, usually in a big way up or down.
If we look at the indicators in the chart of the Dow Industrials (Indoos), we note that the oversold conditions have been worked off, and a very bullish divergence in the MACD indicator (and a positive cross in MACD) has yielded up a meager pennant rather than a clear breakout or trend reversal.
Even if you discount the "death cross" of the 50-day moving average (MA) dropping below the 200-day MA, a declining 50-day MA does not suggest a Bullish resolution to the pennant.
That intersection of the 50-day and 200-day MAs offers up a tempting target for market Bulls. What should worry Bulls is that these positive moves in the indicators have yielded up such modest results--a pennant that is a week or two away from a potentially major break up or down.
As for the dollar, the pennant may well be a sign of strength, as the Federal Reserve has been trying mightily to push the USD to a new low while propping up the euro at 1.44.
The basic reason is that a weakening dollar is the primary engine of U.S. corporate profits, as I explained in About Those Permanently Rising Corporate Profits... (August 12, 2011). If the Fed is unable to suppress the dollar via propping up the euro, then the entire stock market rally built on a falling dollar will collapse is a heap, shattering Wall Street's PR of permanently rising corporate profits.
As noted in that entry, the euro and the dollar (as measured by the DXY index of weighted currencies) are on a see-saw; if the euro breaks down as a result of the eurozone's irreversable structural dilemmas, then the dollar will strengthen and the Fed's master plan of pushing stocks up via a weakening dollar will have failed.
We have no idea how much treasure is being thrown into the fire to maintain the euro at 1.44 to the dollar, and that is the "news" which we must not be allowed to know, lest the extreme vulnerability of the eurozone financial Status Quo and the global rally were reflected in the foreign exchange and stock markets.
Being completely out of the news cycle is a blessing, in more ways than one: not only is one's mind untwisted by propaganda passing as "news," one is free to look at charts without the carefully designed biases implicit in the "news."
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Snidley ? Let's call a truce?
You started this bs... If you are willing to stop, so am I...
So yY ou want to cross my bridge? I'm Good on that!
You can put your bridge where the sun don't shine...
You've blown any cred you might have had here...
You've racked up an impressive score of negs...
You've lost the debate and stooped to physical threats...
You've proven beyond any doubt that you are a TROLL for hire...
Time for a new screen name for you TROLL...
How about 'Fed Lover'... or 'banker's favorite cock sucker'... or, you pick em... lol
Snidley you, are lost in time. Look @ the time posts on our comments! Ding / Ding ( You're it)...
I" ll ass slap you S/W. You no nothing about finance!
Bring it on, azz hat!
Snidley I'm on the west coast right now . I'll personally fly to where ever you are and kick your Monkey ass! When and where/
Ref : the last 30 posts you tool!
both of you have lost any cred sorry to say.
are you both margin clerks?
l and s...
The troll attacked me... so screw you and screw him if you don't think that I have a right to defend myself...
He's not worth responding to, you don't need to defend yourself. I think it's good advice not to "feed the trolls".
Long & Short? Like you have any Credo? Who are you ass clown? At least we discuss business!
Stay under the porch you pussy!
if this is what you call "discussing business" then your "business" is in a sad state of affairs.
coming up with one liners does not show your level of understanding of anything
as far as my credo is concerned I am not here to prove anything to you "cock gobbler" or anyone else, but whe I see shit like this posted by people claiming to be in the know it just brings the site down
go back to surfing brazillian trannies from your double wide with your mom
The last 30 posts? During the last 30 posts you have proven...
That you are a paid troll...
That you will stoop to physical threats when you are losing a debate...
That you will lie about your longevity on this site...
That you will suck any bankers appendage to get a TROLL payment...
That the system that you advocate is failing and there is not one damn thing the Fed, the feral gov, or timmy can do about it...
That gold has kicked the crap out of equities for the last 11 years and is continuing to do so...
Did you decide on a new screen name yet? lol... pathetic little puppy...
Snidley, or what ever you are... I'm very comfortable. I'll call you , or anyone else out any day.
It would be nice to know that you aren't an ambulence chaser! ( You Are) We both know that.
Deny it if you can?
You kids SHUT THE FUCK UP and go play outside.
I don't care who started it, I just want you both to knock it off. This shit keeps up, and you'll have to go stand in the corner.
OBAMA WILL SAVE US !!!!!!!!!
Us being the short the stock market, short the bond market, short the dollar, long PM's investment group.
I wonder if s/w ever learned how to ( Postulate) an ( ( icosceles triangle)?
How much dough you made postulating icoscles triangles...
TROLL
Hey, boy, gold has kicked the crap out of equities for the last 11 years and continues to do so...
You are pathetic! You can't even answer my q/a. What are short term spreads? You PUSSY!
Just let me know where to fly! I want to put my fist through your Bull Shitting forehead!
On the S&P 500 it seems to be making a descending triangle which is decidedly bearish. I expect this pattern to break down to 1040 in 2-3 weeks (the triangle does frmo 1120 to 1200).
http://finance.yahoo.com/q/bc?s=SPY+Basic+Chart&t=1y
We get QE3 announcement on 1040 for S&P and its goes sideways for a year forming right shoulder of the H&S pattern between 1040 to 1200. If S&P hits 1040 dow is headed to 9750-10000 range.
A decending triangle? You effin rookie! Look @ sub/ indexes and ( vix) s/t...
.
Without daily Fed intervention it goes straight down...
Your crystal ball needs a drink of radish juice...
Thanks Snidley> My Black Friend says you are a ( Progressive Niggar) I'm a Cracker!! !
You Win!?
Welcome yam crill...or whatever your new screen name is... BTW, did I mention that GOLD HAS KICKED THE CRAP OUT OF EQUITIES FOR THE LAST 11 YEARS AND CONTINUES TO DO SO...???
I didn't want our conversation to end without bringing that up...
Oh, I almost forgot... WITHOUT DAILY FED INTERVENTION THE EQUITIES MKTS WOULD CRASH AND BURN...
But, I feel sure that a few trillion more handed out to bankers will rectify these niggling financial problems in the near future...
What do you think, yam krill?
Snidley Whip Shit is a Florida / Wana be Atty! He is not licencened in Cali! He is a puke! He is a repo Bitch!
Manage your own money!
WOW .. ok I gave your the misspelling the first time but AGAIN !!!
LICENSED !!!!! YOU FUCKING IDIOT. SERIOUSLY!!!!
Bring your A game or dont come out. Fuck me, now I remember why I stopped posting a year ago.
You two read like an old married couple----just get a divorce
save the rest of us from boredom
You haven't thought through the euro's demise if you think the weaker member states leaving is bearish euro/usd. The euro is effectively a weighted average of the member states real fx weights. Greece should be maybe 0.4usd while Germany is maybe 2.0 usd, etc etc. If you remove the lower value countries from the euro, it will appreciate, not depreciate against the usd!
Counter-intuitive I know, but the fact is that the weaker member states leaving the euro effectively makes the euro the deutschmark, which is worth more usd.
You will incur heavy losses betting against the euro. It can and will appreciate against the usd as weaker member states leave.
So what happens to the "excess euros" that get abandoned by these weaker states, they also rocket up in value?
I think your basic premise the Euro is a weighted average of some phantom equivalent FX value is just wrong. There isn't any phantom equivalent currency. From a mathematical point of view I see the beauty of that as a simple equation, but I see no reason to think that it is true.
Snidley I have an idea / You parasite. Tell me what a pivot is, and how to find it?
Explore, Fibis. Williams Curves, Elliot waves, Decending trendlines you worthless tool!
It's hard to find any reason to follow you. Financial planning and IRA's are pase"
What is your pathetic game? You can't read charts.
"Tell me what a pivot is, and how to find it?"
A pivot is what you do to yo mama when yo daddy aint lookin...lol
Get a life, TROLL
Let's pervert, or reinterpret, the commonly accepted 'language' within the framework of our time:
state capitalism = fascism
DO NOT LET THE INTELLECTUAL CLASS AND THEIR BLOW HORNS TELL YOU OTHERWISE.
How about STFU Milt! ? And learn how to trade!
Works well for USD/EUR! TD says the 1.44 level is all the Feds doing, but the PBoC and Merkel & co. are also players. PBoC wants to bring the US down to its knees. (Personally I think this type of war is much more rewarding than half of the shit we do in military projects.) Merkel and the rest of the European leadership understand the importance of a strong Euro realtive to the dollar. All levels of European society, from the bottom up, I mean the guy or woman with no education, knows how the Euro is doing against the dollar. The European banking system is about to implode, but as long as the Euro is strong, the masses won't panic - yet. The strong Euro illusion worked for Greece up until about 3 weeks ago when the average citizen started withdrawing their money. Since these people do not have the capability to open up a Swiss franc bank account, they are literally stuffing the money in their mattresses! ... side note- PBoC is starting to get nervous about the Euro promotion program. Notice how about 2 months ago, Chinese leadership stopped banging the drum on a new world reserve currency? You're hearing little squeeks from Chinese leadership for the first time warning the Europeans to fix their problems asap. Next step, Chinese shift a percentage of their reserves back to USD.
I read these charts ! You lazy ass hats didn't!
I think Yen and Snidley are the same person. He is very drunk and bored.
And yes, TA still works.
I wish! Whats your mantra " POOPY PANTS"?
Can you read a chart, or is it just ( FEELINGS)?
Do you know what a ( ECB) overnight swap is?
Since we are talking shop....
Accummalted 4500 shares SDS over past week or so.... in at average of 25.7. However sold 45 contracts of SDS Aug 26 calls at 27 and 28 (awp 0.45).... down slightly, but I am patient... Will sell another slug of weeklies at 26-28 depending on the open on mon (tue??)
Good trade, Get up early!
Thx, always do....
I trade options to make my nut.... also run "the worlds smallest hedge fund" on the side...
Dont do forex... see it as a mug's game...
Always long cash flows from oil and NG and, of course, PM's (various forms)
So, Speaking of spreads! I'm still long aud/usd . Do we revisit the tops? I think we do. Dovish RBA.
By the way folks I trade options.
I'm thinking of selling GLD naked weekly puts
1650, Of course if price not gap up on Monday.
That sound incredibly dumb, I will take them.
Naked is dumb, though, for these reasons:
Why not sell a spread, where you get 70% of the upside and 10% of the downside of the naked scenario.
GREAT ARTICLE!
That explains it all why the FED has been saving European banks all along. So it wasn't actually saving but more like a FX War with Europe.
This only means that there's a part deux where Europe is retaliating and countering the FED moves. To bad those moves aren't as transparent.
Surely the dollar's inability to break to a new low could be said for the SPX? It tested previous lows three times last week and bounced off (albeit on weak volume). FWIW, I am of the opinion that the next move should be down, but given the rampant manipulation of the indices, who can tell?
You guys are missing the big player in all this, China. While China hoards all the gold it mines and buys more and works for side deals to avoid the dollar it still needs the Euro to be viable as an alternative currency for several reasons. First Europe is their biggest market and a collapse of the Euro would stall their exports to the region. Next their battle to replace the USA as Asia's premiere power can't succeed while the dollar is clearly the only international currency. Gold is constrained by the lack of sufficient liquidity and no one completely trusts the Yuan at this point.
The Euro is clearly over valued but until the backing of the Fed and China ceases its best to avoid the trade entirely. Gold is the winner in this battle, at least for now, as the only neutral store of real value.
10Y and 5y CHARTS AND CORRELATION WITH S&P. A mini trend seems to be developing in the S&P over the next month.
http://capital3x.com/?p=420
The free section updates
http://capital3x.com/?p=436
All built on paper pulped fiction sandy foundation. Now the tide of truth comes in and washes the paper ponzi system all away. Leaving only real monetary stores of value. It's not the shovels of sands everyone keeps on deposit & all DEBT; monster freight trains of sand brought in to put a moat around the illusion. It won't keep out the tide of truth rushing in & washing away mans lies. All is corrupt and all comes falling down. High tide and now it washes all away.
Jim Rickards: "We've been subjected to 80 years of economic (Keynesian) junk science."
Next time you find yourself in a stand-up fight in which you have little to no desire to participate (sure, we all love Fight Club as a movie but reality is far trickier), try this technique: In one smooth motion drop your pants to your ankles, thereby exposing your APD (Adult Protection Device aka "diaper"). Everyone in the room, including your assailant, will immediately start apologizing profusely and buying you drinks. And no blood was spilled!
Mr. Smith,
i really can't thank you enough for that. if i were to try and explain how many things just clicked in my mind, well, you'd have something of a dissertation on your hands. it's easiest to say that, prior to reading this article, i had a good idea of what all the moving parts were...but it was like lookin at a static engine, just a bunch of oddly shaped cogs and belts and gears and boxes. fella, you just cranked the ignition, and now i see what drives what where and why -- and what to look for if you sense trouble...don't get me wrong, i'm not going to be opening a competing desk next week; but i suddenly feel a lot more powerful -- and that's sayin a lot.
and the channels (or pennants, as you call em'); i guess all i can say is that anyone who does not recognize the value of identifying a dramatic turn in price (no matter the direction it inevitably takes), is judging tech analysis far too hastily.
Technicaslly the "pattern" is drawn incorrectly, and is forced. There is no pennant.