Tuesday, October 29, 2013

Charts 10-29

We need a nothingburger FOMC tomorrow, just another one of those carbon-copy releases where they praise a statistic or two and commend the current policies for promoting growth.  And the release, it's already priced in!

The real surprise could come on Thursday with the actual announcement of the upcoming POMO schedule.  That's where a surprise taper could hit the tape -- hard.

SPY puts are still kinda pricy.  The November 170 SPY put only lost 4 cents of value today, telling us that the market thinks a 70-handle plunge in the next two weeks still seems perfectly reasonable.  I want to see these options react to the FOMC statement tomorrow like AAPL or GOOG options after earnings; once the "event" is out, the hedges are unwound and they rapidly lose value.  Then, as we ratchet up towards the target mid-channel @SPX 1778, VIX can plummet in a final wave of complacency.

Yeah, that would be swell.

SPX 10-29

The ensuing tape, based on 2008, showing a fund-manager "bonus" rally into EOY.

SPX 10-29 6M

The January 1 Bradley turn would then introduce the larger wave 3 of A down here.

Keep an eye on the DJIA to see if and when it completes that broadening-top megaphone.


John said...

The wall of cash into U.S.-listed mutual funds and ETFs (including those that invest overseas) has hit $277 billion, and that's with just over two months to go in the year, according to TrimTabs Investment Research.
That's the most for one year since $324 billion for all of 2000, which of course is the year the last tech bubble burst.
About one-sixth of that money has been invested this month.
TrimTabs says the net $45.5 billion through Oct. 25 is the fifth-highest monthly inflow on record.
(The two biggest monthly numbers also came this year: $66.3 billion in January and $55.3 billion in July).
A big driver has been the Federal Reserve's surprise decision not to begin tapering its monthly bond purchases, which means interest rates are likely to stay low for longer (and making safe-haven bonds less attractive).
The story is the same in Europe, where money has flowed into stock funds for 17 straight weeks, including a record $5 billion in the latest week, according to Bank of America Merrill Lynch.
Since June, inflows have totaled $83 billion.
But as is often the case with mom and pop investors, their timing may be less than impeccable.
If it's not another case of "buy high and sell low," it may at least be "buy high".
--Silvia Ascarelli, "$277 Billion Into Stock Funds So Far This Year; Highest Since 2000", Blogs.MarketWatch.com, October 29, 2013.

Also it is interesting that the R2K is beginning to under perform the bigger stock indexes.

Christian Gustafson said...

And hey, it's even possible that the Fed could announce a policy shift in the statement today. Wouldn't that be something?

Depriv said...

My bet is, that it's already over.

This channel you drow is a fifth wave of an impulse, IMHO.
It's an impulse itself.

If you look at the SP futures, mind the triangles (always fourth wawe in an impulse) swarming on various TFs. The last one is around 1756.

After that, it's a single impulse upward on M5. (With an almost-triangle around 1767).

Bryan Franco said...

CG -

Since 1896, there have been 346 peak to trough declines in excess of 3% that were followed by new highs. Looking at the last three, 5% +, 3-5%, and 3-5%, there is NO precedent for the market to decline in excess of 20% without another 3% + correction first, followed by a new high. That leaves a lot of wiggle room (3-20%), but by that measure, I am saying there is no precedent for a long-term top here without one more mini-correction first. Do you have a count that admits for a 3-20% decline followed by a new high?

Christian Gustafson said...

I don't understand, Bryan.

Doesn't the May top & decline count? How about August's top?

John said...


Bryan Franco said...

CG - it does count. The trailing sequence is 5% +, 3-5%, 3-5%, which is May, Aug, Sep, respectively using closing prices. This sequence has never produced a 20% + correction without having a 3-20% correction followed by a new high first. This was precisely the sequence going into May 21st as well. August and September WERE eligible tops that didn't pan out. This one nasty sequence, 5%+, 3-5%, 3-5% happens to be the only trailing sequence of 3-5% and 5%+ declines that requires a new high! This isn't my opinion, just history. I wish this wasn't the case.

Permabear Doomster said...


The surprise taper, even if not announced today?

Sorry, but what the hell? Just why do you think that?

QE-pomo will be $45bn in November.
It will 45 in Dec.

Unless you have some inside information, that is the craziest thing I've read in a while.

Bryan Franco said...

"that requires a new high" should read "that requires a new high after the next 3-20% correction which results in a new high, assuming the new trailing sequence going into said new high doesn't become 5%+, 3-5%, 3-5% yet again."

Christian Gustafson said...

Just a theory, PD.

Why has the Fed been selling bonds back to the market lately?

Is someone starved of collateral? Wouldn't it be easier if the Fed simply bought fewer of these sandwiches next month, instead of going through all of the trouble?

This comes tomorrow at 3pm, at the end of a parabolic ramp, an arguably-complete wave count, near a New Moon, and inside of a Bradley turn window (the last two have nailed turns).

Just a theory, PD.

Bryan Franco said...

In other words, the trailing three corrections based on closing prices has to be something other than 5%+, 3-5%, 3-5% going into a new high. There are eight total permutations of this string. The other seven possiblities (say, 5%+, 5%+, 5%+, or 5%+, 3-5%, 5%+, etc) that result in new highs are all eligible long term tops. Long term top is defined as any decline in excess of 20%.

Permabear Doomster said...

...QE continues.

It will not end.

They might cut it a bit next spring/summer, but you can sure bet they'll ramp it >$100bn a month..on the first excuse.

They WANT the bubble.