Thursday, February 28, 2013

Charts 02-28: A good start

Great close today.  We made it up to 1525 with a five-wave move, and bounced hard off the wedge boundary.  We need to see some follow-up damage to the indexes tomorrow, maybe taking us as low as 1491 before a bounce.  This may be the last chance for the Big Bearish Wedge; if it's violated again, we'll probably break through it and head to targets up to who knows where.

I'll post more charts and longer-term counts over the weekend.

SPX 02-28

Wednesday, February 27, 2013

Charts 02-27

Looking like the turn is shaping up to be a (the?) top.  GDP in the morning!  GLTA!

SPX 02-27

Tuesday, February 26, 2013

Charts 02-26: Flip a coin

The upcoming McHugh phi mate turn date could still go either way.  Or there's always the third option, that "turn dates" are chart voodoo, not to be taken seriously.

I drew plausible scenarios for both, the turn as a top or as a bottom:

SPX 02-26 - speculation on the phi mate turn date

Overnight /ES isn't giving us any clues just yet.

This is only fun for me because I'm flat, waiting for the turn date to get a sense of where we are headed next.

Monday, February 25, 2013

Charts 02-25: Delays! More delays! Ack

Whenever we approach one of McHugh's phi mate turn date windows, there's always this uncertainty as to whether it's going to be a top or a bottom.  Lately the phi mate turns have all marked bottoms, including the last one on 12/31.

Unfortunately, the decline today was strong enough to suggest that it will continue a few more days.  The McClellan is in bottom territory, but we're in the middle of the wider channel now and still have room to go lower.  

It's more likely that we continue lower for a few more days than that we bottom right now and shoot north for a top into Friday.  The 3/1 phi mate is most likely a bottom.  Ironically, the drop today makes a higher high more likely now!

If that's the case, then we can look at the moves since the November low and make better sense of them.  First, let's propose that W1 ended at 1423, giving us an 80 pt wave, followed by an unusual W2.  Now we can see that W3 extends W1 by a multiple of 1.618x.  

If we can bottom Friday with a spike low to 1474, an 80 pt W5 gets us to 1554 by mid-March, very close to the 2000 high.  SPX 1554 adds a few more questions, but we can worry about them if we get there.

I think the top callers are still early ...

SPX 02-25

Friday, February 22, 2013

Charts 02-22: Setup for the top

When the recent retrace stopped at 1397, instead of crossing the larger channel to the SPX 1480 area, it suggests that it belongs with the recent set of waves, and not the action before the New Year.

i.e. the move up from SPX 1343 looks more and more like it counts in 3 waves -- A, B, and C -- with a strong possibility of C finishing up this week into the coming turn date.

Monday, we should pull back on the UK downgrade (released after market close, of course) and then rally midweek with the Bernanke testimony, just, well, just because.  We'll look for an ending-diagonal shape and will especially dig it if it can terminate off the bearish wedge overhead.  That's the setup.

SPX 02-22

Stay frosty.  And listen to Burt!

Wednesday, February 20, 2013

Charts 02-20: Back in the wedge

Well, alright!  I was worried I might have to look at a 1550 top here, and explain why going up that high could blow up the Big Bearish Wedge entirely.

The setup is there for us now for the retrace down to 1500, followed by a final rally back up to test the wedge.  If we fail again, it could mark the technical top for the whole enchilada.

SPX 02-20

This came over the transom today:
I got a question for you guys, I've had a few hundred allocated silver bars I've been paying storage on since 2005. I decided I was paying too much as a safety deposit would be much cheaper. Today I took delivery at the bank of the bars after months of the run around trying to get the damn things. The bars I received were stamped with a 2012 mfg date. Have others had similar experiences, I'm thinking of suing for my storage fees back.

I'm going to call on Monday to hear their explanation. None of the bars I have match the original serial numbers of the bars the auditing firm assured me were there. My worry is that they gave me someone else's bars.

Because I payed several thousand a year from them to hold a specific set of allocated bars. It looks like they sold me bars they didn't have in the first place. There is more to this story though, including a VP from JP Morgan calling me to ask what it would take for me to keep my bars in storage. When I finally said I want them now, they buried me in months of legal red tape and contract paperwork. For instance, they told me about 3 weeks into it that the bars were being moved, and I had to fill out new legal paperwork for the new storage facility. That took at least a month to process.
Moral of the story.  If he didn't get his silver back, at least he got some silver back.

In the future, the only silverback will be in the gorilla den at the Woodland Park (Seattle) zoo.

The Smart Set here knows to go on rainy days, when the zoo amateurs stay home.

Monday, February 18, 2013

Making the bearish case

Bear capitulation rules the land.  The Fed has POMO in high gear, and stocks simply will not be permitted to fall.  When one leader does stumble, the indicies absorb the blow, rotate from one sector into another, and find support.  At the worst we may see a pullback, a dip which will be bought.

In 2007 the obvious RE bubble and subprime mess did not matter because everyone was hedged.  When Lehman went away, so did that last sense of security, and we had the crash.  Fed intervention and POMO is taking the place of derivative strategies this time around, they are in complete control of things, and they won't let events get ahead of them again.  Well ... we'll see about that.

I believe that we can crash again, but that there will be a period of bear market violence in the market, with sharp sell-offs and vicious rallies -- in other words, a repeat of 2007.

The deflation case is as strong as ever -- my friend Reverse Engineer penned a good restatement of it the other day -- but it's not going to take the market down all at once.  It needs a starting point, and time to build, gradually, into larger waves, until we finally get that surprise that takes us down in a grand finale.

I contend that that surprise may be Germany withdrawing from the Euro this Christmas, using the holidays to declare a bank holiday and a conversion back to the Mark.  This summer will witness increased shocks and strains within the Eurozone, with the usual fingers pointed towards Germany, slurs against the "Nazis", demands for them to pay their share.  There will be rumors, but there were rumors before.

And in the winter, Germany will shrug, and take its own path.  I say this now, not for the sake of prediction or prophecy, but because if it all works out, I intend to put all the firepower I can into index puts on the very eve of this great event, and I want this record to show that I suspected it was coming.  OK, SEC?  We clear on this?

We have plenty of room on the long-term DJIA log chart to plummet to long-term support.  The entire market rally since 1995 could come right off (and I think it will).

But for now, the big bearish wedge needs to hold.  We have that McHugh phi mate turn date coming up in a couple of weeks, which happens to hit the fedgov sequester on March 1.  I think we see complacency up until that very moment and then oh shit, they actually let it happen.

SPX 02-17
But it won't all come off at once.

We've got to fight it out first, just like 2007.  And we need POMO for this.  We have got to keep a bid under this market, and faith among the market bulls ("maniacs" as Permabear Doomster calls them).

Prechter's lightning-bolt crash into the dirt is one of the worst things that ever happened in bear-dom.  It fed the idea that it could all go to shit at once, without retrace, without mercy, so you had better have an iron in the fire just in case.  So bears held puts, or 3x inverse ETFs, and they got eaten alive, because it appears we actually had to work our way out of the hole.  We had to get back to this insane extreme, where bullishness is off the charts and the unthinkable is again unthinkable.  The Fed has got everything under control ... no worries ... go long with leverage ...

As bears, we don't want a collapse, we want a tradable market.  We absolutely do not want to see it all go no-bid and go all at once, until it is ready.  To the extent that the Fed and ongoing POMO can keep this from happening, and to give us awesome bear-market rip rallies, let us watch for these situations, and enjoy them.

But first we need our top.  The wedge is important.  So is March 1st.  If we shoot higher, we'll try to make sense of it with TA, do the best we can.  It's all we have got.

My macro-thesis is that we get one more massive wave of deflation, before the bond market and the US dollar itself come under fire, and we experience the true hyperinflation -- rejection of the dollar as a store of value, particularly in exchange for energy in the form of crude oil.

Like 2007-2009, the crash proceeds in 3 waves, an A-B-C pattern.  2013 gives us A and B, the early stresses and contention, and the beginning of C.

When Germany reintroduces the Mark, we get in 2014 the equivalent of the 2008 waterfall.

A-B-and-nasty-C to support

How can this scenario still be tradable?  Because it will not yet hit the dollar and the (US) bond market itself.  European credit may fly all to hell, but the $DXY will be well above 100 and the 10-year Treasury bond will be under 1% in yield.  For now, for us, the interest-rate derivative monster will be controlled, "easy-peasy, lemon squeezy", as my four year-old daughter says.

It only gets dicey when the European situation is resolved, and the US dollar itself comes under fire.

IMO, the final hyperinflation of the dollar may have several causes, alone or in concert:

1. With crude oil at $20 and the S&P below 500, the basic faith that the deflated US economy can afford the obligations on and off the books will simply evaporate.  Interest rates will dislocate and our money will enter a death spiral.

2. By 2014 or 2015, the bleak reality of peak oil and the world energy situation will be increasingly obvious.  The very idea of the petrodollar will come under assault, which, along with our carriers and H-bombs, is the only real backing for our money.  As long as you can trade a dollar for oil, it's a very hard currency.  Once that ends, it's toast.

3. The crash of 2014 and the death of one or more TBTF U.S. banks forces the Fed/Treasury to break the rules and issue a true naked issuance of currency, to cover the depositors.  Bank of America uses its deposits to back its derivatives book today.  What will happen if this goes to zero (or much lower?)  The Fed buying MBS with newly-created money is pretty close to printing (because they will never repo this trash), but it still stays within the "rules" as we know them.  That may change.

4. When the market tanks again, and Obama's approval flatlines at 13.1%, disgruntled insiders leak the college records and or other key documents on the man.  Then we get a category 5 constitutional crisis which would nuke any remaining faith in our institutions and little details like shared national obligations.  This one is out there as a possibility, but until this is settled satisfactorily it is still very much out there.

Plenty of scenarios pointing toward the eventual death of the dollar.  But there is plenty of room on the charts, and in my narrative, for a scary deflationary convulsion before we get there.

Too many claims on real wealth.  Too little real wealth.

The suburbs and strip malls of the America ... are the collateral for its debts.

Hey!  Don't just sit around waiting to see if the upcoming turn date hits or not.  In the meantime, do yourself a favor and order Dmitry Orlov's new book.

Get a signed copy, if there are any left.

Thursday, February 14, 2013

Chart 02-14: It's V-day in Europe

I don't expect the current pullback to breach 1500 by much, if at all.

At this point, I'm reduced to updating my chart of the 2007-2009 cycle, expanded by a factor of .146, overlaid on to the current tape, while waiting for a short entry into the McHugh phi mate turn coming up March 1st.

SPX 1525 would be the ideal place in my work for the top and turn, a final touch of the big wedge.  100 SPX handles down would close the gap at 1425 and give us our first bounce, a sharp one, if 2007 is our guide.

With this timing, the May 1 FOMC will see us rollover into a frightening wave 3.  Before any of this gets underway, I urge you to go back and review the tape from 2007-2009, and understand just how vicious and nasty the retraces were in this thing.  Look at 3/17/2008 to 3/24/2008, stuff like that.  We're going to see moves like this again.

SPX 02-14 2007-2009  expanded cycle overlay

Tuesday, February 12, 2013

Charts 02-12

From 1522, the retrace to support by 3/1 is very close to the .382 fib, just right for a wave 4.

SPX 02-12

By the way, from yesterday's post on /CL the wave of deflation that would take crude oil from a [guessed] $130 to $20 would probably be the death of the Euro, in early 2014.

We'll have plenty of gasoline when Europe goes offline!  Who's up for a road-trip?

Monday, February 11, 2013

Take the Steve Ludlum challenge

One of my very favorite bloggers is the wise and learned Steve Ludlum, aka Steve from Virginia over on the ZeroHedge.  I have long enjoyed his theme of the folly and misfortune of our waste-based society, as well as his aesthetic perspective on markets and money.

For a while now, he has been developing a theory that the triangle developing in the /CL crude oil futures is a kind of a fuse, with two mighty forces facing off in a final battle.  The upper bound of the triangle represents the limits of money and credit, that the world can only pay so much for the black gold that makes it run.

The lower bound of the triangle represents the price floor of the cost of retrieving oil in a post-peak world.  Below $80, for example, the shale oil and tar sands plays quickly become money-losers, where conservation will be of the forced kind -- by leaving the oil in the ground.

Steve argues that the intersection of these two lines is where TSHTF, and we can no longer afford oil we can no longer acquire.

I decided to pull up the monthly chart from and take a swing at it.

On close inspection, I actually think that Steve's triangle has already completed, that it was a sideways move in a continuing rally in crude oil.  The test, of course, will be if/when we break the triangle and keep going.

After that, I think we get in trouble again, that we experience another great deflationary contraction, i.e. crash, similar to the 2008 cycle.  That would take /CL from an approximate $130 peak down to ... $20.

Then we get the dollar failure and the hyperinflation and the cannibalism and they'll cancel the Superbowl ...

/CL monthly

What do you think of the future of oil?

Will you take the Steve Ludlum challenge?  What of his triangle?

Friday, February 8, 2013

Charts 02-08: Wedge still intact!

As long as we don't gap over resistance Monday morning via the /ES futures, we have not yet violated the big bearish wedge that's been in place since 1158.

We've eaten enough time now that I'm questioning whether McHugh's 3/1 phi mate turn will be a top after all.  On the chart, with a 3-week wave 4, it would make a very nice bottom.  For a while now, Dr. McHugh's phi mate turns have marked numerous bottoms, including the last one on 12/31.

In social mood terms, we will probably start worrying about the debt ceiling soon, and the hard numbers under the economy like the upcoming Durables number that will include the ruinous Boeing sales.  So we are set up to work our way downward, just like in late December.

And just like December, Congress can work something out on the eve of the 3/1 sequester.  What I'm proposing here, though, is that the relief rally off that is still constrained by the bearish wedge, that on a second visit to it (assuming we don't blow it up Sunday night), results in a hard reaction off it.

The first important low would be SPX 1330 or so into the May 1st FOMC.

SPX 02-08

I didn't realize that Charlie Manson had made a tribute to the Fed's balance sheet.  A classic.

Thursday, February 7, 2013

Intraday 02-07: diamond-top?

What began as a megaphone morphed into a triangle pattern on the other side, and now, taken together, it looks like a diamond-top pattern.

Consumer credit is released during RTH in about 15 minutes; maybe it will give us a good read on what the animal spirits are up to lately.

SPX 02-07 intraday (lunchtime)

Wednesday, February 6, 2013

Charts 02-06: and that was a triangle

B-waves make nice triangles, I think this was one.

One of these days (soon?) the Claims numbers are going to exceed 400K.  Tomorrow?  What will happen then?

SPX 02-06

Obama shooting skeet in Deflation Land

I figured this deserved a separate post, for posterity.

And, yeah, I know this is so last week, but this was the first thing that came to mind when I saw Obama's ridiculous skeet shooting photograph last week.

Obama Goya

Tuesday, February 5, 2013

Charts 02-05: Is that a megaphone?

I'm scratching my head wondering if that megaphone shape is a broadening top, terminating this wave up, or if it is just a transitional pattern that will get run over in the morning.  I know some others are counting this as a wave 4 and start of a 5th (of the larger wave 3 up).  The shape is there, however we decide to count it, we'll see what we get on this tomorrow.

SPX 02-05
With all of the excitement today, we are still inside the larger bearish wedge on the SPX.  Daneric has us in a throwover of his wedge, but, remember, he counts the Wilshire.  It will be interesting to see if this makes any difference ultimately on the timing for a top.

SPX 02-05 6M
See?  No touch just yet, although it isn't far above us now.  Preferred count here is for us to (finally) pull back before a run to touch the top of the bearish wedge at the end of February.

Monday, February 4, 2013

Charts 02-04

Here's how we can cross the larger channel by the end of the week, to SPX 1452.  I returned to an earlier count, suggesting that 'a' an 'b' of an irregular wave 4 are in, and we are now working through the 5 waves of a steep 'c'.

Looking for a pop in the morning and hard reversal midway through the session, with damage continuing Wednesday, and finishing up Friday.  If the irregular 4th wave count is correct here, the c of 4 wave will look like an impulsive wave 1 off the 1514 "top", which will then get chewed up in the coming weeks.

SPX 02-04

Friday, February 1, 2013

Charts 02-01

The spike today actually makes for a much better, and complete, count.  The extra time eaten up by the endless BTD action this week pushes the retrace into February opex week.  We rally from there to McHugh's 3/1 turn, and then ...

I've been walking in to work lately, adding 35 mi to my personal odometer this week while saving $12.50 in bus fare.  It's still too dark in the morning to take photos of the latest housing atrocities in Seattle for the blog, but that will change pretty quickly with our high latitude.

Sorry about enabling comment review on the blog.  I've acquired some douchebag fanboi from TF, the anonymous heckler.  I just delete his remarks now without even reading them.  Take it to Daneric's place or the Yahoo! boards ...

Denninger had some nice RIMM trades, but now it looks like he's lost his mind.  It can happen.

SPX 02-01