Wednesday, March 26, 2014

Let's go visit the 200 DMA!

Four days in a row of pump pops in the overnight /ES futures, followed by selling-off, has accomplished a few important things:

it has established a significant reversal pattern
it has dropped us 31 handles off the current all-time high
it has not left any gaps in the chart. 

A gap down in the morning on GDP becomes an important target for a wave 2 retrace in mid-April.  The 200 DMA is within reach now, and I think we can tag it next week, which is an important technical development.  Please note that the McClellan oscillator is already very negative, so that a swift drop to the 1760 SPX area will send it into sorely oversold territory.  

The bounce off the low should be truly special.  After that bounce tops out, we go after the trendline between 1074 and 1343 SPX.  We will bounce off that and pierce it on a 5th wave.

But first let's see if we get our morning gap down here.  The first goal would be SPX 1815, the target of the obvious head & shoulders with the 1850 neckline.

Hey, you noticed the death-cross on the 10Y Treasury yield that is now imminent, right?  With QE out of the picture, the only way rates can get to my sub-1% target is by PANIC and TERROR in the equity markets.  May it ever be so.

SPX 03-26

Monday, March 24, 2014

Charts 03-23

I think we are seeing a stealth wave 1 here, but we need to see another leg down, a 5th wave that would take us down to about 1841.

We had an intraday reversal with the 2007 top, and an instant 30 handles off the SPX.  This time we had another reversal, but only a mildly-negative day at the Friday close.  Again today, with another reversal, but only 9 pts lower.  1841 tomorrow would have us some 42 handles off Friday's high, but with very little to show for it, especially since we would retrace much of that in earnest.

On my count, it will get exciting again when we retrace and reject off the old channel a second time.  This will be a wave 3 that takes us below 1800, maybe even bringing the VIX along with it.

The daily lower Bollinger is right around 1840.  Did anyone notice that the burst late today took us right up to the .382 retrace of the larger drop?  It also gained enough air to complete a ii-iv trendline, which is important in my world.

SPX 03-24 stealth W1

/ES is up 4 pts ... need to see this break down overnight for some selling and a little VIX peak in the morning.  Then the real bounce.

Hey, please note that I have finally added the Den Mother of Doom, Gail Tverberg, to the blog list.  I am very fond of her and her important work.  I listed her under TEOTWAWKI right after ATF Machine

Friday, March 21, 2014

Charts 03-21 a.m.: Wish I had posted this last night

Had a thing on the curriculum last night at our elementary school, and some work after.

Today has a very real potential to complete an ending-diagonal triangle.  Up to you to figure out if it is significant or not.  Gap up, gap fill, and a steady rally into the close would do it.

I sketched this yesterday while considering the scenario.  Bradley turn this weekend, BTW, if you believe in such things.

SPX into March opex

EDIT -- one more quick count, larger degree.  This would be one of those broadening wedge tops.

SPX expanding wedge?

Tuesday, March 18, 2014

Kondratieff Fall and the 10Y Treasury Note

I think I'll post this chart about five times to make my point.

10Y Treasury
10Y Treasury
10Y Treasury
10Y Treasury
10Y Treasury

The [my] bearish case argues that there is one more leg down left on yields before The System becomes unglued like an unfinished Seattle townhouse in the rain.

Sunday, March 16, 2014

Charts 03-16: All my counts are crappy

There is a full moon tonight, suggesting a bottom here and a rally through March opex.  Next weekend has the equinox and a Bradley turn date, so I would be happy to see the market rally all week, possibly get as high as 1910 on the SPX.

I did my annual walk to my mother-in-law's house in Everett today, this time in continual rain.  I enjoy the rain in the PNW, especially after getting religion and embracing Ray Jardine's hiking umbrella over a decade ago.  Ray is a Great Man of History and can do anything he likes as far as I am concerned.  It was interesting to see how the heavy rain was managed by all of the catch basins and pools strewn across horrid Lynnwood, WA.

Each year I vary the route a little in an attempt to perfect it.  The most linear route would be a straight run up highway 99, but that route is dirty and noisy and dangerous for its lack of sidewalks.  The heavy traffic there makes it difficult to listen to Kunstler's latest podcast (he's back!) with Chas Hughes Smith on the Deep State.  So I have strung together a route from Seattle to Everett that is is quite relaxing.

I did an end-run around Paine Field and the Boeing plant this year that took me past something novel, a Goodwill "Outlet Store".  I went inside and was shocked.

Goodwill Outlet Store

In a Goodwill Outlet Store, the detritus of our Waste-Based society is batched up in blue bins and sold by the pound.  For example, it's 49 cents per pound for household items.

blue bins and price-by-weight
more crap

This is actually a pretty decent way to get something like a Christmas tree stand or a frying pan; the thift-store junkie in me certainly saw the treasure-finding potential here.  But mostly I was just depressed to see such an array of crap and to realize how much more the Goodwills and Value Villages churn through.  Unwanted clothes are likely baled-up and sent to Liberia or the Congo.  As for the rest, who knows.  I saw lots of full shopping carts here.

The drop this week won't look impulsive until we get one of those 90%+ panic sell-off days, so the odds are here for one more rally up.  Maybe we will even get a Hindenburg Omen or two, that would be swell.  My count is awful because of all of the overlapping in the central waves.  If I were more clever, I would tag WXYs all over it and try to sell that crap to you.  But counting the move down, so far, as impulsive looks even worse.  Let the Full Moon do its important work overnight.

SPX 03-14 -- a tragic mess

SPX 03-14 6M

Tuesday, March 11, 2014

A quick look at Washington pleasure RRE

I have a trio of Washington coastal towns I like to look at once in a while to gauge the state of recreational residential real estate.

These are open searches using the Windermere RE website -- they are the 800lb gorilla of PNW real estate.  I include houses as well as raw land; you see a lot of the latter come out of the woodwork when owners panic and want to dump undeveloped land or lots.  There are multi-million dollar estates in the results as well as $150K ramblers.

First is Birch Bay, to the north, and including a bit of the I-5 corridor leading up to it, with 834 listings.

Birch Bay, WA

Next up, a place I would not mind winding up at the end of the day, Port Townsend and its peninsula, with 316 listings.

Port Townsend, WA

This week's winner is out on the true Pacific coast, Ocean Shores, and the Grays Harbor area, with an incredible 1,205 listings.  There are hundreds of pleasure properties for sale in Ocean Shores proper, along with many others in the wider economically-depressed area.

By the way, Ocean Shores gets wiped clean like a blackboard when the Cascadian subduction zone lets loose with its next guaranteed 9.0+ quake.

Ocean Shores, WA

Keep buying, lemmings, or else get Priced Out Forever.

Here is a close-up shot of Ocean Shores, showing 415 properties for sale in a very small area.  Note that the Windermere site does not render all 415 icons for these properties on the page, but they are out there.

Ocean Shores, WA

Monday, March 10, 2014

Charts 03-10: Adjusting the E-D

Despite all of the exciting news and copper, the market just would not get impulsive downward today.   We'll adjust what looks like an ending-diagonal in progress and look forward to next week, where SPX 1900 looms. 

One thing to notice with VIX and the volatility ETFs is how much the lower Bollingers on the daily have come back in.  The lower Bollinger for UVXY had been way down in the lower 40s, but is now back up at 58.  This suggests that while these ETFs will decline into next week, it won't be one of those scary collapses where UVXY loses 20% session over session.  I'm interested in it at $55-$60 next week.

SPX 03-10 ending diagonal
SPX 03-10 1Y
SPX 03-10 all

Sunday, March 9, 2014

Charts 03-07: Bearish

I think the sum total of grim reality will start to weigh on the equity markets, and we will start chopping our way down through levels of support.  Copper put in a pin under $3 tonight because China's going off the rails.  /ES will catch up.

By the way, 3/6 (+-2 days) was one of McHugh's "phi mate" turn dates.  I don't mention these turn dates here until after they have passed.  His newsletter is dirt-cheap right now; having it lets you know about these in advance, if they matter to you.

There is a Bradley coming the weekend of 3/22; I'd like to see us remain bearish through March opex.

SPX 03-07

SPX 03-07 20D

Saturday, March 8, 2014

Steve, Your triangle of Doom may be complete

Steve Ludlum has morphed his terrific Triangle of Doom model for energy and finance and Your Life into a trapezoid for now.

A symmetric triangle is considered a continuation pattern, a pause and midpoint between the start of a larger trend and more of it later.

Steve is drawing a trapezoid because I think his topline is too high.  If we move it a little lower ... Houston, we have got a problem.

/CL Triangle of Doom

This boundary for the triangle suggests that we have already completed it, had an initial breakout above it, and returned to test it one more time (a "kissback").  Now it's "support".

Expect much higher oil prices.  And blame Steve.

Wednesday, March 5, 2014

Currency Collapse is an Agency of Reform

"[...] the new philosophy takes its bearings by how men live as distinguished from how they ought to live; it despises the concern with imagined republics and imagined principalities.  The standard which it recognizes is "low but solid."  Its symbol is the Beast Man as opposed to the God Man: it understands man in the light of the sub-human rather than of the super-human.  The scheme of a good society which it projects is therefore in principle likely to be actualized by men's efforts or its actualization depends much less on chance than does the classical "utopia": chance is to be conquered, not by abandoning the passionate concern with the goods of chance and the goods of the body but through giving free reign to it."
-- Leo Strauss, Thoughts on Machiavelli, Free Press, 1958

What sense can we make of James Madison's famous Federalist No. 10 today?  This is his essay on the danger of divisive and controlling factions to government, and how the Constitution would guard against them.  His solution was to eliminate the problem by encouraging factions and fragmenting them, so that none of them could abuse its influence and upend the system, and by structuring the scale of the republic so that no faction could have undue influence and deprive others of their rights.

It's not clear, from Madison's point of view, just who the factions are in our world today.  Are they the political parties?  The beneficiaries of transfer payments?  Is the military-industrial complex a single faction, or many?  Likewise with the too-big-to-fail financial elites, or the health-care cartels, the endless political bureaucracies and rent-seekers -- are they unified threats, or a multitude of self-interested parties?  Or is the entire system simply overrun?

What strikes us today is the overwhelming enormity of our situation, the unpayable debt and unmeetable liabilities, the intentionally-blown asset bubbles, an economic system that can no longer create the organic credit it requires for growth, and the complete failure of politics to address the situation or even discuss it openly and honestly with the public.

There was a shift not of degree but of kind, the Republic replaced by Empire, particularly after World War II.  The "republican remedy" cherished by the Madison could not be maintained in the tide of History, the changes brought by a Lincoln, a Woodrow Wilson, or a Franklin Roosevelt; of new amendments to the Constitution; of innovations such as Keynesianism and unbacked debt-based currency.

"Public choice" economics emerged in the postwar period as an effort to examine the problems inherent in this new world.  Bentham and Mill could not have invented it; public choice thought was grounded in the unique situation given by the West: industrial economies (initially) with surplus productivity, with democratic institutions for allocating and dividing the spoils.  In what might be putting the cart before the horse, the school of thought attempted to discern political insights from primarily economic analysis.

An important insight from the public choice school was a sort of deep pessimism about these spoils.  A subsidy or favor, once granted, tends to perpetuate itself forever because of the asymmetry of costs and benefits for everyone involved.  To the beneficiary -- a faction? -- a subsidy is absolutely essential, but to the rest of us, the impact is minimal.

A good example is the Small Business Administration, whose budget of $1 billion is pure gravy for its beneficiaries and the in-house bureaucracy that administers its programs.  The agency budget, divided by the number of U.S. taxpayers, is about $7 per person.  Those feeding from the trough will fight tooth-and-nail to keep their privilege, but who among us would campaign to end it?  Who cares enough to crusade to shut down the SBA?  Is $7 worth the effort?  Write a letter?  An email?

Extend out this analysis across the now-vast Federal government, and add to it sketchy ideas such government expenditures counting as GDP, and we see very quickly what a dire situation we are in.  The monster cannot possibly be reformed, the debts cannot possibly be repaid.  Why, with the current definitions, cutting government expenditures will cut GDP.  We are doomed to failure.

If it were possible to reform the American system, to trim government to its bare essentials and pay off the debt, the last opportunity we had to do this was the mid-90s with the GOP surge led by Gingrich.  This was the last chance as an ideological moment, but more importantly as a demographic one, since the Baby Boomers were still in their prime earning years.  If the whole project had not crashed and burned so horribly, it would have been possible to tackle the outstanding debt (if not the entitlements) via austerity.  But we blew it.

The Weekly Standard, first issue

Our entire economic system now rests on an outrageous fiction, that the debts incurred on the nation since the 20th Century are "money-good", that they can be paid, and that they are binding on current and even future generations.  This is a sickening idea, for to the young and those unborn it is odious debt and is not in any way binding on them.  In fact, the system is desperate to create any new debts it can, however it can, to keep the game going.  At the moment, permanent student loans, 84-month subprime auto loans, and securitized rental housing payments are holding things up.

But "the system" cannot be reformed with policy.  The trenches are dug too deep.  The factions are secure in their bunkers, enjoying their privileges.

The solution is currency collapse.

The collapse of the Treasury complex, and with it, the U.S. dollar, is the one event that puts a full-stop to the madness that our debt-powered society has become.

In the event of a collapse of the currency, all of the factions feeding off the system, the government workers, the recipients of transfer payments from their betters, the scandalous public pension recipients, will need to make other arrangements.  No law, no arguments will be necessary.  The checks may still be written, but they will lack any real purchasing power.  All dollar-denominated debts and values will have to be revalued in terms of something else, something real.

No one will be spared.  It's not as if your employer flips a switch, and your paycheck comes to you as Morgan dollars or Mercury dimes.  Institutions simply collapse under these conditions.  Most of them, in fact.

It is a fair question whether the United States itself will survive the experience, or if it will fragment into autonomous regions.  We quickly get into questions of energy and societal complexity, what will be both manageable and stable in this future.  A posh enclave like Loudoun County, VA, will go from the upper echelons to full-on Mad Max in the space of a weekend.

Thomas Hobbes will be the latest intellectual fashion.

More important are questions about whether or not we are still a nation, in the full sense.  But that topic is for another day.

Collapse of the Treasury complex and of the Dollar do not necessarily bring back our Old Republic.  Classical political thought holds that tyranny follows democratic excess and collapse, and we are very likely to have a series of Caesars.

Vladimir Putin is a Caesar, actually not a bad one at that, but he is what the Russian people needed after their own collapse, and I believe that he does act in the best interests of the Russian Federation.  His personal fortune is excessive and an embarrassment; a true statesman would repatriate the bulk of it to the Russian people in their hour of need.  But I am not Simonides to Putin's Hiero.

Again, I maintain that just as your regular paycheck will not transform overnight into junk silver, the United States will not magically roll back to republican government under the Constitution circa 1800.  The problem is that the citizenry is thoroughly debased and no longer capable of the self-governance required of a free people.  An extended period of deprivation and attrition will be needed to get the population into proper shape.  The survivors have a chance to emerge as a free people one day, only if they are worthy of it.  First we will have a few Caesars.

We are entering a period where all of the classic questions of our (Western) civilization will come to the fore, questions of law and order, of the true natural rights of man, questions of man's right of resistance to a tyrannical sovereign, of the nature of money, of the best political order.  Our unserious, ephemeral, late-Modern culture ignored these issues, but they were there all the time, and will continue to be so.

When will currency collapse take place?  To answer that, we need a bonus chart, on the 10-year U.S. Treasury bond.

U.S. 10Y Treasury bull market

I argue in this chart that we are entering a terminal phase of the bull market in bonds that began with the end of Kondratieff cycle Summer in 1980.  This long-term chart shows yields forming a bullish wedge, the upper edge of which will be broken violently when it completes.

The final leg of the chart is a fifth-wave ending-diagonal pattern, a compressing, overlapping pattern that indicates that the trend is running out of steam and about to change direction.  This fifth-wave has one more leg down, a deflationary shock that will rock the equity markets and take 10Y yields down to a Japanese-like sub-1%.

After the deflationary shock plays out, the folly of the Fed's maneuvers will be evident, and we will be left with a wrecked economy and unsustainable debt loads.  Confidence will be lost in the value of Treasury bonds and in the Dollar.  Its status as an equivalent of crude oil energy will be absolutely critical.  Once yields break back above 1%, bonds will sell off in increasingly vicious cycles, and the derivatives bomb in the U.S. banking system will -- at last -- detonate.

And that's how and when you get a currency collapse, even in King Dollar.  The unpayable debts will all become worthless.  Any attempts to re-validate these debts -- Treasurys, Social Security payments, pensions -- in the new order will only trigger a series of nasty civil wars until these claims are abandoned.

I have on my wall a framed collection of German currency from the Weimar era, ranging from 1DM to the 500 million DM bills from the crack-up boom.  The bills are dated and, toward the end of 1923, printed only on one side.

Weimar Papiermarken

What is shocking about the German hyperinflation is the insane speed at which it took place, which you can see across the face of these bills.  It was all over within a few months.

With electronic, global trading systems, how long do you think a modern Dollar collapse would take?

And, whether we like it or not, the collapse of the Dollar will be a climactic act of Reform, completing the long credit cycle with Kondratieff winter.  It will change the world we live in overnight -- nothing will be the same, for the 20th Century will now, at last, come to a close.

We look to a great German stoic for advice, a witness to the last cycle.

Faced as we are with this destiny, there is only one world outlook that is worthy of us, that which has already been mentioned as the Choice of Achilles — better a short life, full of deeds and glory, than a long life without content. Already the danger is so great, for every individual, every class, every people, that to cherish any illusion whatever is deplorable. Time does not suffer itself to be halted; there is no question of prudent retreat or wise renunciation. Only dreamers believe that there is a way out.  Optimism is cowardice.

We are born into this time and must bravely follow the path to the destined end. There is no other way. Our duty is to hold on to the lost position, without hope, without rescue, like that Roman soldier whose bones were found in front of a door in Pompeii, who, during the eruption of Vesuvius, died at his post because they forgot to relieve him. That is greatness. That is what it means to be a thoroughbred. The honourable end is the one thing that can not be taken from a man.

-- Oswald Spengler, Man and Technics, Knopf, 1932

Tuesday, March 4, 2014

Charts 03-04: 1886 on deck after all

SPX is the old target area for W1 ~W5 similarity, based on a 149pt wave 1 up from SPX 1560 last June.

Trendlines project this for Thursday morning.  General shape here is that of an expanding ascending wedge, or a broadening top.

SPX 03-04
SPX 03-04 9M

Sunday, March 2, 2014

Charts 03-02: Quick post on /ES

The overnight /ES futures are sitting right on critical support from the proposed (terminal) ending-diagonal that began on February 13th.  The drop halted tonight precisely in the same place that the SPX  roaching did during RTH on Friday.

/ES 03-02

Once this breaks down, I would look for it to build out a larger impulsive move back to the 1740 SPX area, followed by a strong bounce into March opex on expectations that Yellen will table the taper.

When the March FOMC announces the next $10B cut in QE, well then it really gets exciting, doesn't it?

First we need to see these ending-diagonals break on the chart, both on the /ES and the SPX.