Friday 26 July 2013

Volatility slips into the weekend

With the indexes rallying (rather strongly) from morning lows, the VIX failed to hold minor gains of 5%, and closed -1.9% @ 12.72. Across the week, the VIX gained 1.4%. If sp'1700s, then VIX looks set for the 11s (briefly), before the next surge in Aug/September.





For the equity bears out there, the VIX hourly and daily charts tell the story of failed hopes.

Once again, despite the VIX declining, the underlying MACD (blue bar histogram) cycle ticked higher for a fourth consecutive day, and is now just 3-4 days away from breaking to into positive territory.

*best guess is that the current equity up wave from sp'1560 will complete by the FOMC of next Wednesday. From there, VIX should first make a play for a few daily closes in the 15/16s.

The big question is whether VIX can even break 20 in the next equity multi-week down cycle. I'm guessing it will, but only the low 20s seem viable.

more later..on those resilient indexes

Closing Brief

Another day of failure for the bears, where the main indexes saw moderate declines in late morning, only to rally into the weekend. Most indexes closed effectively flat/moderately higher. The sp' close of 1691 was a real victory to the bulls, and opens up the 1710/20s next week.



*the close of 1691 breaks the B' have high, and arguably confirms the wave'4 ABC.

For the bears, another deeply annoying and frustrating week, not least todays price action.

As I feared in late morning, with the underlying MACD cycle already very low, the bulls were always going to have a good chance at pushing things higher.

Its been a rough week for many, not least yours truly. I will hope the mid-term wave count is broadly correct, and that we will have downside back into the mid 1500s by mid September.

Have a good weekend

*next main post, late Saturday, on the US weekly index cycles

3pm update - climbing into the weekend

The main indexes are battling higher for the fourth consecutive hour, and the morning low of sp'1676 is looking a fair way down. Bulls should be content with any close >1685, which still opens the door to 1710/20s next week.



For the bears..a frustrating end to the week.

My best guess remains..a small sub'5 next week..and that will complete the past 5 weeks of utter nonsense.

As many are starting to project, Aug/September could be pretty volatile, although VIX 30s still seem almost completely out of the range of possiblities..

Not the best day for EXPE, after somewhat poor earnings.

If the main market tumbled back into the mid sp'1550s by early September, it will be interesting to see how far EXPE can fall. Target zone would be somewhere 35-30.

2pm update - bears in trouble

Market continues to broadly battle back upward, and the bears are in real trouble into the Friday close. Just another 5pts will make for a green close, and set up the sp'1700s..which have been teasingly close for the last two weeks.




Looks like we're closing with the third hourly candle to the upside, those still holding short will no doubt be getting kinda annoyed.

VIX still looks set to close red, not least with the usual end-week smackdown in the closing 5-10mins.

The usual AMZN

Since when did making a net profit matter? Urghh

1pm update - 8pts off the low already

The bulls are already staging a typical fight back after the earlier non-significant falls. A close in the sp'1690s will again smite the bears, and set up the 1710/20s by next Tue/Wed. Metals remain weak, but recovering somewhat with the main market.




It doesn't look great for the bears right now. If 1676 was the sub'4 low - and it sure looks like a clear ABC wave, then we should just keep on pushing higher into the Friday close.

Certainly 1700s seem unlikely today, but Monday...yes.

VIX is weak, and looks set to close red, with the last 4 trading days merely being a bear flag.

12pm update - is that it?

Bears have mustered a moderate drop into the mid 1670s, with the VIX up a rather lame 5%. If that was the best the bears could do, then bulls should expect a good 2-3% upside into the FOMC of next Wednesday. Metals and Oil remain weak, despite a weak USD.




*VIX looks done on the hourly. Bears looking for further equity declines into the Friday close..have the usual problems.

Its that old 'guessing the micro-moves' game again.

Best guess is indeed...C of 4 is complete, although I see some out there looking for the 1660/50s.

Underlying MACD (blue bar histogram) on the hourly index charts will be levelling out this afternoon, and a major turn upward across Monday looks very viable.

VIX update from Mr T

time for lunch

11am update - still nothing significant

The main indexes have taken out the recent sp'1680 low, and no doubt many are now calling for doom next week. The declines are still not significant, the bears haven't had a significant down day in almost 5 full weeks. Baring a close in the 1660s, the bulls are still in control




*probably important to note that despite the index weakness, the VIX isn't even up by 5% yet.

Well, a fair few out there have been looking for another small wave lower, and we're getting it.

Best guess, this is a C' wave of a 4, with much higher levels next week.

Lets be clear, the general mood out there is still very bullish, it'd be surprising if 1698 turns out to be the top of wave'5..almost a week ahead of the next week FOMC.

10am update - morning weakness

Once again the bears are managing moderate declines to start the trading day,  but there still seems a general lack of power on each downside move. With the FOMC next week, Mr Market is no doubt already back to fears that the Fed QE will be reduced.



Best bear case looks to be the low 1670s, which would make for a somewhat large decline to end the week. There is a clear gap at 1655, but that looks very much out of range.

*Metals remain weak, although its nothing 'too critical' yet.

It could be worse I guess, I could be long EXPE.

One to watch into next week.

Pre-Market Brief

Good morning. Futures have swung lower overnight, sp -7pts, we're set to open around 1683. Precious metals are weak, Gold -$9, with Oil -1.4%, despite a weak USD, -0.3%.

sp'60min3 - broad outlook/count


So, we're set to open lower, although so far, we're not going to break yesterday mornings lows of 1680.

Best bears case is a break into the 1670s, but I can't see any lower than that.

Frankly, considering the last 4 weeks, the bulls should be content with any close in the 1690s.

*the only econ-data is consumer sent' @ 9.55am, perhaps the market will use that as an excuse to ramp off the opening drop?

Notable movers so far: EXPE, PCLN, lower by 23% and 3% respectively.

Denniger has a case of Moon Madness

It would appear that eminent online writer Karl Denniger - aka 'ticker guy', is suffering from a rather severe case of 'Moon Madness'. Anyone now touting 'QE for the long term' will be banned, nor will any talk that the Fed can (temporarily) solve economic instability, be tolerated

With the full moon of July'22 now starting to fade, it was somewhat disappointing to see Mr D' go off on another of his little tirades this afternoon. Indeed, the last few days have seen some rather strange posts, and something is clearly 'building' in the background.

Lets get one thing clear from the start though...

Denniger remains one of the best out there in terms of macro-economics, and is unquestionably one of the top online econ'/finance writers. However, the post from Thursday July'25 is not entirely offering the most positive outlook for his long term viewership..or personal 'stability'.

Second, the issues raised here about QE/money printing remain ones that are still baffling many, when really, they are so simple. It is arguably a case of 'smart people' trying to make a simple concept/process, look complicated, if only to make themselves seem more grandiose.

First, go read the latest tirade @ Dividing by Zero

There are three main issues to address...

Issue'1 – no more talk of "QE Forevah!"

Well, I can understand that. There is a time and place for nazi-level censorship, and its his site after all. Good luck with that style of moderation for the longer term! I'm sure it'll work out just fine.

As for QE itself.. the notion that the Fed 'have to stop' is of course incorrect, and a wilful delusion.

There is absolutely no reason the Fed have to do anything. Indeed, that is the beauty of it. The Fed can do anything they want*. They have a very loose mandate from the US Govt' for 'low inflation/high employment', and are allowed to basically do whatever they wish to achieve such goals.

*one thing to look for in the next few years - not least at the next major multi-month equity down cycle, is the Fed officially supporting the US equity markets, as the JCB (and some other central banks) are already doing. It would be a very natural step for the next Fed chair-person to eventually initiate an official program to 'invest in America' by buying outright Stocks and ETFs, in addition to the usual T-bonds/MBS.

The Federal Reserve system sure isn't going anywhere, despite periodic postings from those in the doomer community that it will 'all end..real..real soon'.

Why would the Fed EVER want the game to stop anyway? Did they just spend the last four years doing their utmost, only to just...walk away when the next crisis hits? The Fed has managed – via printing just a few trillion, to almost single handedly keep everything from imploding since the 2008 financial crisis.

Issue'2 - 'You cannot divide by zero. '

Sure you can...when you''re the one in control of the money supply. There are NO rules, and that is precisely why the proclaimers of imminent financial doom have been wrong since the 2009 equity lows.

The US Federal Reserve continues to print (currently, a relatively low $85bn a month) – as they still deem necessary/appropriate, to support the US capital markets. Indeed,  most world markets since 2009 have soared to new historic highs.

Sure, house prices are still pretty low in many places - relative to the 2007/8 highs, but most asset classes are higher now than ever before..and its almost entirely due to the Fed. Considering we're only talking about a few trillion, I've no doubt the Fed is actually surprised at how well things have turned out - at least from a 'confidence' point of view.

Issue'3 - 'That which arithmetic says is impossible will always be impossible '

Yes, of course there is a mathematical limit, just about everyone agrees on that point anyway, the real issue is surely more about 'When'...not if.

Anyone using even simple math would know the 'end-date' could be many years..if not DECADES away. The notion that everything is going to 'blow up' in the near term, is simply wishful thinking on the part of the doomer bears.

What about Japan?

Japan is in a far worse financial situation than the USA, and yet they've been doing QE for roughly twenty years, and Japan is still ticking along just fine. The Japanese capital markets do get rattled at times, but generally, for the average Japanese citizen..everything is currently 'kinda okay'. Certainly, any talk of 'Japan doom' is mere bearish hysteria.

With the USA in a far better position (demographically speaking) with a regular influx of (admittedly, mostly poor/illegal) immigrants, the can kicking will easily last far longer than Japan, perhaps many times longer.

If the demographic basket case that is Japan can manage 20 years of money-printing/can-kicking, why won't the USA manage twice that amount, or how about a somewhat rounded half century?

Still under-estimating the Fed

There is another FOMC meeting next Tue/Wednesday. There is again the incessant taper-talk in the media, but does it matter for the longer term outlook? Even if the Fed slightly reduce QE this year, you can be sure they will increase it again if the US markets become persistently weak.

There is no reason why the Fed can't play the game of 'end QE'..and 'start QE' for years...many...many years. Far more than anyone out there is dare suggesting right now.

It is that very point that most are still ignoring, and that is why the 'QE forever' posters are indeed entirely justified to remind everyone that the game is far from over. Indeed, Japan is the finest example that the current four years of Fed money-printing is more likely just the beginning phase, rather than the end-game.

One thing seems pretty likely, the Bernanke - along with all the Fed regional governor's are surely finding the incessant QE discussions/commentary very amusing.

Goodnight from London
ps. no matter how many posts Denniger does on the Blackberry smart phones, I'm still not going to buy one!

Daily Index Cycle update

The main indexes closed somewhat mixed, but more to the upside. The market battled slowly..but consistently higher into the afternoon, with the sp' +4pts @ 1690. The 1700s are again right back on the table, and the market looks set to rally into early next week.





So...once again it was the case where the bears saw early morning moderate falls, only to see them evaporate. Even the especially weak Transports managed to close effectively flat after earlier falls of around 0.8%.

With the R2K closing +1%, equity bears still look largely powerless.

Best guess remains, sub'4 is now complete, and sub'5 should take around 3-4 days, with a target of sp'1710/20.

a little more later...