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.

Slowly I turned ...

Step by step ... inch by inch ... 

The DJIA found that crummy little trendline I drew last week and looks glued to it for a few more days.

Sheer tedium -- 100 shares of SPY bouncing around like a game of four square.

DJIA megaphone

Sorry re the gaps in this chart -- OX always shows the Dow like this.


Wednesday, October 23, 2013

Charts 10-23: 3PDH update

The tape may not pullback much beyond 1740, giving us a week of tedious, low-volume crawl back up to our projected top at 1768 on 10/31.

The thought now is that there are so many TOMO operations and reverse repos in the past six weeks or so, that the wider market may be starved of quality collateral (Treasuries).  Another option would be to reduce the POMO of Treasuries going forward.

Here's an update on the Three Peaks and a Domed House count.  So where does it start?  666 or 1010?  and where does it take us?

SPX 10-23 3PDH
The SPX 568 target for EOM March, 2015 is the trendline between the 2002 and 2009 lows.

Tuesday, October 22, 2013

Charts 10-22: Two ending diagonals

First, I want to thank the Tylers and the regular readers for the fun last week where we got picked up by ZeroHedge and had a good time with it.  To cap it off, Jim Kunstler even brushed on the subject in his regular weekly missive.  Hey, how about that!  What a kick.

The chart is slowly making some sense again, and I've revised my target here for SPX 1768 next Thursday, October 31, by 3:00 PM EDT.  The rest of this week should be some pullback, either mild to the 1740 area, or a little more, enough to overlap the earlier high at 1729.  Either way, next week sees continued dollar weakness and happy rally into the FOMC.

I still suspect that after October FOMC we get a nasty surprise with the November POMO schedule, i.e. less than $85B planned.  This may send us 40 handles straight down in the final hour Thursday, a reversal that begins the great Bear Market of 2013-2015.

So we've got two ending diagonals.  We've got the near-term one we are in now:

SPX 10-22 6M

And we've got this monster one we've been in since SPX 1266.  We will revisit the SPX 1266 area next August.

SPX 10-22 2Y

Long-term bottom target is SPX 568 on March 30, 2015.  And you know what happens then ...

Wednesday, October 16, 2013

Why I stopped worrying and learned to love the currency collapse

For the past 300 years, the historical pattern has been for the era marked by a century to continue into the following century by fourteen or fifteen years.

Let me explain.  Everyone knows that the 19th Century, its uprightness, its optimism and sense of purpose, the halcyon days of British Empire, came to an end with World War I, starting in 1914 and building to a nasty crescendo by 1916.  The 20th Century had arrived, and it had some real horrors in store for us.

Germans before Kraftwerk

But if we return back another hundred years, we notice that the 18th Century ends in 1815 with the final defeat of Napoleon, that final project of the Enlightenment and of the French Revolution.  With the Congress of Vienna in 1814-1815, we have a new Europe along the lines of Metternich's plan, and the 19th Century at last is here.

"Sorry, guys.  My bad."

In 1713 and 1714, we have the Treaties of Utrecht, Baden, and Rastatt, bringing an end to the era of Spain as a major power, and the rise of the Habsburgs.  Louis XIV dies in 1715, after reigning for 72 years.  The Baroque period is over, and we are now firmly in the 18th Century.

War of Spanish Succession

We still live in the 20th Century.  Nothing much significant has changed in our lives in the past twenty years.  Symptoms of a deeper rot are appearing here and there, foreshadowing a larger crisis, but the crisis itself has not arrived yet.  We still live in an era of Pax Americana, the old republic very much a strained and tired Empire now, with the U.S. Dollar as the world's reserve currency.

That is going to change.  

The next task for History is to dismantle the untenable structures and institutions put in place by late Modernity, which have been extended now as far as they can go.  Our debt-based monetary system will collapse, our unbacked fiats will be worthless.  The debts and unmeetable obligations will all default.

There are ironies and great contradictions as the former home and hope of Liberty becomes viciously unfree and increasingly despotic.  Our leaders no longer govern, but try instead to rule us -- they are less legitimate with each passing day, their laws corrupt or worse.  They are nearly finished, and will be swept away with the tide.

Just as in 1914, the internationalist system will break down, dashing the hopes of the would-be first-world nations.  We will probably have a pretty good war as well, or many local ones worldwide.  These transitions tend to involve war.

Deflation first -- it clears the way for the complete loss of faith and hyperinflation that will follow.  The next big wave down in the financial markets is the battering ram.  The U.S. national debt is about faith, so is quantitative easing, and so is the very idea of magical coins that could ever be "worth" a trillion dollars.  When this is faith breaks, in concert with loss of faith in perpetual growth and unlimited cheap energy, then things will move very, very quickly.

There is nothing any of us can do at this point, except navigate the rapids as well as possible, and to stay out of the way of a dying empire, which is still very dangerous in its death throes.  We are actually very privileged to be alive and witnessing this next transition, to what we do not know just yet.  But what an honor to live at this time, not in ignorance but with an existential resolve to come out of it alive and much the wiser.

Ass Americana

Charts 10-16: Snoooooze

Well the market never doubted that the GOP would flake out completely on the debt ceiling debate.  Well, fine, let them incinerate themselves in the eyes of what's left of their supporters.  An important part of a Fourth Turning cycle like this is the discrediting of our institutions, including our political parties.  So we have made some progress here.

What I'm not expecting any longer is any kind of sharp pullback from the high, the "wave 2" I've been looking for a few days.  It's probably not going to happen now.  But that also means that the big gains are already made on the chart.  We've got 2 weeks now to creep up a mere 27 handles on the chart -- we nearly did that today!

I'm still sticking with the SPX 1748 area on Halloween afternoon, going into the 3pm release of the November POMO schedule.  Between now and then ... sideways and up ... dreadfully dull low-volume days ... VIX trickling lower ... UVXY in the low 20s or even teens ... just a miserable two weeks.

The November POMO schedule release then becomes the next opportunity for a real change of pace here.  Is there an insider technical reason that the Fed may taper?  Are they sucking up too many Treasuries, resulting in failures-to-deliver and serious collateral problems out in the debt markets?  Any number less than $85B announced for next month will likely drop us 30 handles on the SPX within the final hour.

This is exactly the kind of policy and momentum shift we need to start us down.

So hang in there if the next two weeks are a sleep-fest.

SPX 10-16

Monday, October 14, 2013

Charts 10-14

The move up from the 1646 low sure looks like a completed five-wave impulse (not a triplet) in a tidy channel, right into an area of resistance.

Now we just need a whiff of panic for a wave 2.  Or will all dips be bought?

SPX 10-14

Saturday, October 12, 2013

Charts 10-11: Back to Bulkowski

It's time to return to class, to learn at the feet of Bulkowski, who will remind us just what an ending-diagonal looks like.  I'm not going to post his charts and sketches -- go visit his site.

So maybe something like this:

SPX 10-11 30D

The pullback should come Monday when news of some impasse hits the wires.  They'll straighten it out later in the week.  It's no big deal. 

Still thinking we could see an end to it all Thursday, October 31, when the next POMO schedule is published.  November 3 that weekend is another Bradley turn; the last two have been hits!

Short-term count:

SPX 10-10

Thursday, October 10, 2013

Charts 10-10

I did want to put up a quick sketch tonight of how I think we might finish up the rest of the month.

The pop into the close looked like (v) of 1 to me, because it was too long to be a subwave of 3.  I guess we will see tomorrow; maybe it will morph into something else.

Better still would be some squabble in the morning over socialism or growth or whatever other distraction, that would give us a 50% retrace for a W2, to the 1669 area.  Not only is this the 50% retrace, and the logical target for support for an inverse head & shoulders, but it is also where the old lower trendline for the original ending-diagonal, the one drawn up from 1560, passes through.  So it should offer excellent support.

A halfway-back move tomorrow could be an excellent spec play with front-month options, if a real budget deal is hammered out over the weekend.  Yeah, I think we can pop all the way up into the 1740s out of that one.

If the W3 actually completes into October opex, then waves 4 and 5 will need to find a way burn off time and excitement by moving sideways, maybe even with another E-D for the 5th wave.  October 31 still makes an excellent top, coming after a Fed meeting, when the new POMO schedule and amounts are announced.

SPX 10-10

Wednesday, October 9, 2013

Charts 10-09: Ending-diagonal scenario still alive

I can't be the only one wondering today, just who is going to take the darned Minutes, now that Janet Yellen will be the new Fed Chairman?  What will they do now?

The deeper sell-off this week, breaking through long-term support, means that if the ending-diagonal here is still in play, and we are headed to new highs, then we can no longer make it north of SPX 1750, at least on this count.  Any higher than that would require this to morph into a new count, because wave 3 cannot be the shortest wave in the series.

Rough wave 3 - wave 5 equivalence would put us up at 1748 on October 31.  My friend Pieter suggested today that something very, very important will happen during RTH that day, the sort of thing that would give us a vicious sell-off and a perfect topping candle.  Can you guess what that might be?

SPX 10-09 6M

I don't normally like or chart the DJIA, but since Permabear Doomster mentioned its touch of the 200DMA today, I thought I should mention it.  It looks like a broadening megaphone top, one of Dr. McHugh's Jaws of Death:

DJIA 10-09 6M

Of course, the pols will need to sort out their differences for us to make new highs, and I believe they will.  Don't let any of this bother you!  None of it matters, not even the ACA.  It is meaningless and irrelevant where we are going.  All of this vanishes in a puff of smoke when the $USD collapses.

The Yen may provide some additional support for the market in the meantime.  Notice the wedge breakdown and kissback.  It may be headed for new lows.

Yen futures hourly

Good luck to all, and may we have one more anemic, low-volume, completely self-conscious 5th wave up.

On the advice of a bookseller (I was scrounging for Richard Burton), I just finished reading Wilfred Thesiger's classic Arabian Sands, about his travels with the Bedouin tribesmen of the Arabian Peninsula and crossings of the Empty Quarter after World War 2.  This is as good as travel writing gets, an incredible collection of tales.  Burton's First Footsteps in East Africa is on-deck now.

Monday, October 7, 2013

Charts 10-07: Bradley turn eve

The last Bradley turn, June 22, marked an important low.  My target for tomorrow is SPX 1663 and change.  a of 4 == c of 4 @ 1663.81.

SPX 10-07

Larger view of the ending-diagonal in the works here, plus a suggestion of a violent, volatile market to follow.  If we count the collapse to SPX 570 as an ABC, wave 1 of A should complete into the December FOMC.

SPX 10-07 6M

Saturday, October 5, 2013

Charts 10-04: Return to Anderson's Books

I walked down to Ballard again today (Saturday), to visit Anderson's Books again, this time with my 7 year-old daughter in tow.  My poor kids are used to my book habit by now, and behave themselves very well in any shop.  They browse the kids' sections and know that I will buy any books for them that strike their fancy.

I'm in a corner of the stacks for a while, looking over the history books, when I realize it's very quiet.  Not sure she is there, I call for my daughter, and after a minute, she arrives.

She has a book with her and asks if she can have it.  She had been wrapped up reading it in the corner alone and in silence.

Oh shit!  It's a book of poems by Alan Ginsburg!  I'm instantly overwhelmed with his ominous warning -- "We will get you through your children!" --  and here I am, stunned that my own child has found this book and likes it.  A lot.

A quick scan through to make sure it's not obscene, and it comes along with us.  Here's what else I found.

I have most of Solzhenitsyn's writings now in hardcover, which makes a nice set and should make a nice sight together on a shelf.

Alex Solzhenitsyn, August 1914

I went back for the Dreiser.  I'm heavy into the realist American writers, from Frank Norris to Dreiser to Tom Wolfe.  The print in this one is very small, so it should make for a long read.

Ted Dreiser, The Genius

This next guy is a lot of fun.  Once I stumbled across an old, worn copy of Gangs of New York, many years before Scorsese made his movie with Daniel Day-Lewis.  Asbury was a minister, shocked and appalled by the crazy shit that was everyday New York City in the 19th Century.  Gangs covered the legends of the Bowery, the murderous gangs that looted and killed sailors down at Battery Park, the spooky Chinese tongs and their assassins, the insane draft riots of the Civil War, everything.  The book has a reformist tone, as Asbury, a man of God, is looking to document the horrors of NYC in an effort to improve the conditions there.

This one is billed "An unflinching account of the sink-hole of depravity and vice that once made San Francisco's underworld the most dangerous spot in America".  Sounds great to me!

Herb Asbury, The Barbary Coast

The problem about reading this, and returning to San Francisco to look for the locations, is that the slate was pretty much wiped clean by the earthquake of 1906.  So today while I can visit all of the cool scenes from the 1978 "Invasion of the Body Snatchers" movie with Donald Sutherland, I doubt I can find anything at all of this one.  But the stories should be good nonetheless.

And I picked up that spare copy of F. H. King's book Farmers of Forty Centuries, on organic agriculture in Southeast Asia a century ago.  I love to give books away, and this is a gift for a friend.

F. H. King, Farmers of Forty Centuries

Charts?   I still think we head a little lower to finish off the 4th wave of the ending-diagonal since SPX 1560.  I stared at the chart Thursday night and could not make much sense of it.  I think Friday helped.

SPX 10-04

Longer-term count with the proposed top @1751 November 4th.

SPX 10-04 6M

Wednesday, October 2, 2013

Charts 10-02: Ending diagonal revised

I think the ending-diagonal call is correct up here, but I think I got the scale of it all wrong.

The 10/8 Bradley turn is most likely to be a bottom.  I'm looking ahead to the 11/3 Bradley turn and November New Moon a possible 5th wave top for the diagonal.

The trendline from 1709 through 1729 ends up in the 1750 region, another month away.  It makes for a nice sequence of waves.

SPX 10-02

The proposed ending-diagonal 5th wave here is the terminal pattern for an even larger terminal pattern that began at SPX 1266:

Having a few extra weeks here does not put 1778 back on the table, however, because it would make the 3rd wave of the sequence the shortest.  That's one rule we will not welsh on here.

Tuesday, October 1, 2013

Charts 10-01: Yet another ending-diagonal

If we're going to top, it would be nice to have a terminal pattern in the tape so we can buy index puts with confidence.  We're in luck -- from the 1675 low on Monday, I think we have the first few waves of an ending-diagonal.

But first, you've got to see these nasty-ass hobo spiders I caught the other day (outside!) and flushed down the toilet.  Supposedly, these little fuckers have a necrotic bite like that of a brown recluse, they are one of the ills of living in otherwise-lovely Seattle, WA.

evil hobo spiders
die you fuckers, die die die

OK, feel better, got that out of my system.

So we're looking for an ending-diagonal.  On my count we have wave 1 in so far, and part of 2.  The pop into the close is b of 2 on my count, with a little more pullback into mid-session tomorrow.

I would guess that at that point we get a news flash on the CR negotiations that rallies us through Friday.  If the Bradley turn on October 8th is our top, the upper trendline points to SPX 1752.

With the gap down Monday and loss of time, I don't think we can make it north of 1770 by 10/8 without the vision of the Virgin Mary on the NYSE floor or some such.  But the current tape will allow for 1752.  Remember, 1752 is some waver A ~ C similarity between the "A" that began at 666 and the current "C" that started at 1074.

SPX 10-01
SPX 10-01 - I think 1752 should work here

Also, I hit Value Village after work like I always do, and I've got a new crush ...

Rodale's Complete Book of Composting

Isn't she dreamy?