Category: Trading Articles
- 12 July 2016
Last night, I was listening to a broadcast from Richard Koo, the chief economist of the Nomura Research Institute and author of "The Holy Grail of Macro-economics: lessons from Japan's Great Recession" courtesy of Tim Price at Sovereign Man. It's hard to find an insider, one who was in the thick of the battle, to talk candidly about how critical times have been throughout recent financial history, but here we actually have such insight.
Koo's view of the current macro-economic situation is rather unique but his prescription is purely Keynesian in approach. Even if you don't care to understand the economics and his point of view, flip to about 31 minutes in and listening to how government and Fed officials necessarily have to knowingly fabricate elaborate lies for years to keep the system from failing. If you don't think this is going on in times of crisis - like right now - then I have some swamp land to sell you.
Will it matter this time? Will we reach that tipping point this time around? Right now it would be hard to argue that since once more the stock market dogs are running laps around the track while acting as if the race had just begun. It's always a possibility but if there's one thing I have learned over and over again it's not to try and impress your view on the market but to try instead listen to what it's saying at critical points.
Looking at the charts, the critical line in the sand was the 2103 level on the S&P 500. That price area was captured on Friday as we suspected and positioned for on Thursday of last week, but now the question is "What comes after that?" To get over it was a huge deal. To hold that level on a weekly basis is something else. So good so far on the latter point as the stretch higher continues. Here's the current view as the S&P 500 now sits at all time highs again with a projection of 2178 on the current bullish ABCD structure.
But even though we have new highs here, we don't see that elsewhere - far from it still on the NDX 100 and the Russell 2000. That usually leads to a situation where either the S&P drags the others higher or they drag it lower. With earnings on tap for most all companies now, this tug-of-war will be resolved one way or the other over the next couple weeks of trading against a backdrop of a huge flood of money by central bankers and governments in most of the industrialized world.
In Japan we have Abenomics promising another huge round of QE while the BOJ will also inject more stimulus through some new inventive stimulus program (which is getting harder and harder to do since they own almost all the government bonds already).
In England we are about to get Carney and the BOE injecting more stimulus and the question that remains there is what does the new Prime Minister do on her part - more stimulus too?
In Europe, we likely won't see anything for another month but there too the story is the same.
Finally in the U.S., rate increases are on hold again and this week we hear from Fed speaker galore - three today in fact. Will they tone down the rate hike talk that they keep exercising after prior meetings where they vote to do nothing? If not, the dollar will continue to try and rise.
Although we are positioned for more "up" in the portfolio, we can't lose sight of the downside potential and we have to look to those levels that are critical. On the S&P 500 it is pretty clear now and that's the bullish retest and regenerate zone that now sits below in price and, as usually happens, it's just above what was the critical 2103 area.
This is the lowest risk price zone to put more exposure on if you are bullish and is where we should expect buyers to show up. If they don't then it will say a lot about the short term outlook. If they do, then it will indicate that the projections higher have a higher probability of being met.
Recognize that just because the RT/RG zone exists doesn't mean it has to be tested but probabilities suggest it will and that should happen within six bars. The higher we spike prior to the retest, the higher the probability that the test holds and regenerates so this continued push is laying the groundwork for further gains and that's how we should be viewing this.
So, although my longer term view remains that a larger range is playing out, the shorter term timeframes are not trading that way so as a trader and reader of the tape, you have to accept what the market chooses to do and to benefit from it while it does it while keeping your eye on the horizon. Sooner or later this great monetary experiment will come crashing down but without balance sheets in central bank offices, we have to accept that the financial alchemy can persist for a very long time.
Category: Trading Articles
- 27 June 2016
Brexit was just the clock striking midnight on latest S&P move
Making long range predictions about the future is never an easy task and many times those predictions can look like total failures as they play out. Just last week, the long range prediction of a multiyear large trading range for the S&P 500 - a trading range that will like mirror that which transpired from 1969 until 1980 looked to be crumbling. The February 2016 article "Welcome to economic stagnation and stock market dysfunction" was just such a longer term forecast; one principled on the idea that the coming decade of market gyrations would look a lot like the 70's although for an exactly opposite set of reasons. If you haven't taken a look at that piece, you might take a few moments to review it.
As of Thursday last week, the S&P 500 was threatening to breakout once more - push over the highs from 2015 and attempt to leg higher. As fate would have it though, Brexit intervened and the latest fairy tell rise once more witnessed the clock striking midnight. Now we have last year's breakdown pattern looking more and more like a repeat.
If true, the long term implications are for an eventual range duplication in the direction of the break - so another 300 points or so to the downside which would push the S&P 500 back towards the 1500 area.
Note this projection is on a monthly basis and thus will take months to play out if it is true. There will necessarily be many stops and starts along the way but from today's price point, that's another 500+ points still or another 25% down - a loss total that would make Friday's 3.6% decline seem like a walk in the park.
The fact that the British decided to vote with their feet to leave European Union speaks volumes about the world in general today. There are a lot of angry people almost anywhere you care to look and that anger isn't simply going to blow over. That's what happened in the late 60’s and all of the 1970's and that is what's happening again now.
This article originally published on MarketWatch on June 27, 2016 11:22 a.m. ET
Category: Trading Articles
- 12 June 2016
If bears are serious they'll come down to hit 2089.12 tomorrow- see the following 17day 10min chart.