Friday, November 6, 2015

Charts 11-06: Reader mailbag

Here in Deflation Land, we make it a point to take our half-dozen or so readers seriously.

Mackay, FSG 1974 reprint of the 1841 classic

So when very-bearish reader Scott asks:

I was asking how you formulated your rising "channel" as it seemed constructed to validate your price target rather than based on price history.

We owe him an explanation.

Here's our rising channel on SPX.  2135 is both a new high and a point at mid-channel on a very special day ahead of us.  It also corresponds to an earlier wave up in the cycle, from 1158 to 1422 on the SPX.

SPX 11-6

IMO, we have plenty of room to move sideways for a bit before putting in a final high, preferably at mid-channel and accompanied by lows in VIX and volatility ETFs like UVXY that visit their lower daily Bollinger Bands.

Those are nice to have, but the 11/18 release of the October FOMC Minutes is the next important event on the boards.  As much as we can speculate as to how the Fed will or will not act based on economic statistics, here they have a chance to tell us themselves.  And the Fed will hike.

What I am proposing, however, is that as much as the Fed thinks it has the Fall volatility season behind it, the quants and algos may prove them wrong, and we will get something much more serious -- more truly vicious -- than they or anyone but us deflationary doomer Austrian cranks ever imagined.

SPX 2Y

And we are Austrians.  We believe in reality and in the "long run" of the adults in the room.

Ludwig von Mises, ed. Greaves, 1978

And we are not afraid of the future, of revisiting the lower support of the old Jaws of Death.

SPX 10Y

Klemm, ed. George Allen & Unwin, 1959

For the thesis of the deflationist is that we get a deflationary debt crisis first, which shatters the remaining faith in the powers-that-be, in The System and in The Man, which is necessary before the final hyper-inflationary currency collapse.

SPX long-term

In that case, I recommend having a few good books on hand, and maybe some candles.

A Conrad Argosy, Doubleday, 1942

Have a good weekend!

32 comments:

Christian Gustafson said...

So what I'm saying, Scott, is that I want very badly to short this market, but ... not ... quite ... yet.

But soon. And I want the vols on board before I commit.

Sarah Bell said...

As Mr. Burns would say "Excellent" " Now release the hounds" ( of doom ).

Permabear Doomster said...

Your last chart is a grand overview... having decisively broken the 2000/2007 high, the notion we'll ever trade under sp'1500 again... makes little sense.

--
Regardless, have a good weekend.

Christian Gustafson said...

*link spam deleted*

For crying out loud ... this is a First World blog ...

Bicycle said...

19000, then 8000, then 40000, then 0.

But I'm really here for the books.

Christian Gustafson said...

None of these books are rare; all of them are easily found on abebooks.com for very little money. Books like these form the guts of a deep library. Not every book on my shelf can be the 1751 5th ed of John Locke.

The Joseph Conrad collection from Doubleday is a really neat artifact. Paired with a Heritage Press copy of Nostromo, now I have a full set of his novels. But this is a big, hearty, readable book.

It provides a good distraction while waiting for the release of the October FOMC minutes.

scott said...

And the MF cycle and the BPSPX prevail over the fictional "channel".

OOPS there it is...the pattern was always a rising wedgie with divergences and weak internals and a money flow cycle that ended today on the 9th.

I'll post the money flow cycle again that show today as the end. Note that I only updated this by adding a dotted line for reference. Also note the HUDGE divergence on the SpecK indicator.

http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&st=2014-11-03&en=2015-11-09&id=p30456607910&a=384142303

Watch this chart today and tomorrow for confirmation

http://stockcharts.com/h-sc/ui?s=%24BPSPX&p=D&st=2015-07-07&en=today&id=p41127739990&a=408867296

scott said...

also there has been massive divergence in the 7,4,8 macd on the VIX. Major equity sell.

http://stockcharts.com/h-sc/ui?s=%24VIX&p=D&st=2015-06-26&en=today&id=p13489124190&a=428878359

scott said...

http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&st=2015-05-29&en=today&id=p65673755133&a=406333442

2060ish 200ma and first gap

Christian Gustafson said...

The tape from Nov 3 - 9 looks just like the tape from September 17 - 29, a controlled release of steam, with a final sell-off.

The .382 retrace for the run from 1990 to 2116 SPX is 2068.

Let's see if the dip buyer brigade shows up (2071 SPX as I post this).

Christian Gustafson said...

LOD 2068.24 SPX.

Let's see if it holds. Anyone buy the dip?

T.Berry said...
This comment has been removed by the author.
T.Berry said...

i'm waiting to see if we go a bit lower. if not i'll try to buy unter 2100. already 95% invested (long term holdings 10+yrs).

Christian Gustafson said...

A good ZeroHedge comment from:

gcjohns1971

" Bankers have to lend money in order to make money"



That's not precisely true either for fractional reserve commercial banks or for central banks.

It would be more correct to say that Bankers must lend currency in order to create currency.

Specifically Central Banks place a unit of debt onto their Asset Sheet and use it to back the creation of currency on their liability sheet. Currency is essentially a check that draws upon the value of a debt as the checking account.

Commercial banks essentially do the same in reverse. They take a unit of deposit (which is usually someone else's debt) and put it on their liability sheet, and then they issue debt in multiples against it across the banking system...multiplying the currency.

Currency disappears in the reverse of this transaction, when someone pays back a debt, or when they refuse to, causing the transaction that created the currency to be closed.

Since the value of the currency is wholly discretionary based on debt with a limited lifetime, and given the interest, which is impossible to close using only the values present at the time of the debt's creation, the currency must eternally grow such that each successive round of debt is large enough to cover both the principal and interest of the previous round. To avoid deflation, the debt must eternally grow. Because the debt carries an interest rate, the debt must eternally grow faster than the currency...leading to a situation like the present.

I use the word currency, because currency created and destroyed in this manner has at best a notional utility as a store of value...which is why countries that adopted it created social safety nets such as social security at the same time...because you can't save much in real terms in a systematically depreciated currency.

The process of printing money systematically in this way redistributes existing income - as a claim on current production - away from those who produced it to those who did not. Since the recipients of the newly printed money need not allocate a portion to economic renewal and funding the next round of production, they have very different spending habits than producers.

But the ultimate achilles heel is that in so doing it distorts prices - the relative value of things. In distorting prices, whole industries servicing only recipients of printed cash grow...and those who produce die.

Yet the entire system is one of redistribution, not production. So, essentially, all things being equal you get an eternally shrinking economic pie, which eventually cannot service the debt necessary to keep out of deflation.

This is a real problem for governments and central bankers, because they cannot tell the 'Real' economy from that which exists only to service redistribution. Stated another way, they cannot recognize bubbles. And that is one reason why they try to stimulate demand...

And here we are. We have arrived.

Printing more money, which requires larger debts, simply raises the cost of servicing the amassed debts even more, distorteds prices even more, and draws more productive resources from the real economy to the redistributive economy who service the lucky recipients of printed money.

T.Berry said...

good call on 2068 cg. should have bought today--ugh! held up rather well. probably throw half of 5% cash in tomorrow. its long term money so not worried at all.

Christian Gustafson said...

Fed's got yer back ... until it doesn't.

Which is why I'm so interested in the FOMC Minutes out 11/18. The August mini-crash came off a similar release, but merely on the speculation that the Fed would hike rates.

Until then we can speculate whether this UE report or that industrial-capacity metric warrants a rate hike, but what really matters is what the Fed has to say on the matter.

If they're pissed off and release a firm statement re raising rates in December, the sell-off could be fierce. Volumes are very thin, and we regularly see flash-crash like behavior on illiquid equities.

In a real sell-off, there are secondary effects possible from some of the ETFs and ETNs in play, where they trigger vicious self-reinforcing feedback loops. ZH posts on this from time to time, that the market structure for these things would be highly dangerous in a liquidity crisis.

So dance while the music is still playing, sure, but don't be the last at the party.

scott said...

http://stockcharts.com/h-sc/ui?s=%21HLDIFTOT&p=D&st=2015-05-11&en=today&id=p16082498855&a=425289763

http://stockcharts.com/h-sc/ui?s=%24NYHLR%3A%24NAHLR&p=D&yr=0&mn=5&dy=0&id=p19149338771&a=427967638

http://stockcharts.com/h-sc/ui?s=%24NYSI&p=D&st=2014-04-13&en=today&id=p42488960007&a=431499812

http://stockcharts.com/h-sc/ui?s=%24NYAD%3A%24CPC&p=D&st=2014-12-06&en=2015-11-10&id=p34686939590&a=410852342

T.Berry said...

deployed almost half of available cash on am pullback. long term cash goes to work. have about 3%left for any further pullback.

scott said...

T. Berry...

You better stop, look around
Here it comes, here it comes, here it comes, here it comes
Here comes your nineteenth nervous breakdown

T.Berry said...

have heard that since getting back into stocks 5 years ago scott. my time horizon is 10+ years and cost average in. the market will be considerably higher then (a just 8% historical ave puts dow at near 40k) not worried at day to day fluctuations . the stock market always comes back.

scott said...

time IS NOT your friend in the financially engineered video game you call "stocks"

and for DCAing, if your previous post is accurate, you are virtually out of cash and ALL INDICATORS OF ANY MERIT are at a top again.

You are finishing your DCA plan AT THE TOP OF THE CYCLE!

You will I suppose raise cash on the way down again?

Have you ever considered that "stocks" as you call them are a zero sum game. And that everyone cannot win forever ALL THE TIME?

IF you really have been "back in stocks" for the last five years, WHY would you bet on a completely unattainable 8% going forward at the top of a cycle when you could raise cash and wait for a more favorable cycle?

Really look at the monthly charts below. Your only hope for 8% going forward is that 1800 on the spx holds as this collapses. Once that is gone, 1500 is next to fall.

Is it different this time??? 3% returns over the next cycle is a generous projection for crying out loud...

good luck - you'll need it!

http://stockcharts.com/h-sc/ui?s=%24SPX&p=M&yr=9&mn=6&dy=0&id=p18463246557&a=415949915\

http://stockcharts.com/h-sc/ui?s=%24SPX&p=M&st=2006-08-09&en=today&id=p53245718317&a=403532390

scott said...

in point of fact, T. Berry, for all the BULL MARKET hype, if you do the numbers since the 2007 high, the INDU has had only an average yearly gain of 0.0316769967601071 or 3.2%.

Since you are now at an even more INFLATED cycle high than then, what would you LOGICALLY expect to happen to the yearly averages? go up? LOL

Now while it is true the five year annualized return on the INDU is 0.1248515846196 or 12.5%, WHY WOULD YOU STAY INVESTED AT A CYCLE HIGH HOPING FOR AN 8% average when you have already made 12%? You could safely sit in cash for a couple of years waiting for a cycle bottom and still make more than 8%!!!! BULL FEVER IS WHY THE ZERO SUM GAME WORKS ON PEOPLE LIKE YOU.

IT IS A ZERO SUM GAME AND YOU WILL BE LEFT HOLDING THE BAG with all the other bull believers.

Bill Bober said...

The buy and hold forever strategy only works for the big boys. If you have 5+ million invested in stocks, have another 5+ million in cash, a paid for home and no debt, then by all means let your stocks ride. If however you're one of us regular folk, you MUST pay attention if you want above average returns. If I had not gotten my 401K out of stocks in 2006, I would have been hammered in that downturn. I did get out too soon, and missed the final ramp but it was well worth it by 2009.

Christian Gustafson said...

No taunting here, please. Especially on T. Berry, our resident optimist.

You would have done very nicely following his contrary advice all these months.

Now, if he's still holding long (as far as we know) into a nine-sigma shitstorm Götterdämmerung of the equity markets, well, that's his business, and we expect him to take it like a man.

And even then, we bears won't rub it in. It's just poor form, gents.

T.Berry said...

scott, i'm not going to try to time the market. not that smart :). glad i haven't listened to a relative i see about once a year around thanksgiving who's been saying the market is going to crash for the last 4 years. when he stops warning, i'll get worried-lol. been in since '11 and cost average on pullbacks and sometimes up as well. doing a little better than 12%/yr during that time. with a 10 year horizon the dow/s&p (index etf's dia & spy)will be considerably higher than today. if i sold out now, with my luck the dow would be at 20,000 by q1 next year-lol. don't be so sure i'll be holding a bag in 10 years. at the current rate of return so far the s&p would have to fall to about 1400-1450 , could it happen? sure, but highly unlikely---the economy is much stronger than that. and yes i'm about fully invested. each month though i set aside investment money to put in. so if we do get a 5-10% pullback i'm ready (but hope that doesn't happen till i get more raised :) just under 3% investable cash now) . before yesterday the last time i put in was back in late august and sept, didn't catch the bottom but those returns are up 6%.

Tricky Dicky said...

Your blog turned me on to the III Percent website - and since then a lot has gone on - here are some things you may want to consider regarding your affiliations:

Who Is Courtland Grojean, And Why Should You Care?

https://masondixontactical.wordpress.com/2015/11/11/who-is-courtland-grojean-and-why-should-you-care/comment-page-1/#comment-1378

Sam Kerodin’s House of Cards

http://knuckledraggin.com/sam-kerodins-house-of-cards/

I'm just keeping you updated with the latest.

Tricky Dicky said...

From WRSA: https://westernrifleshooters.wordpress.com/2015/11/11/the-end-2/

FYI.

Christian Gustafson said...

Thank you, Richard, for those updates and links.

I picked up a copy of LIFE magazine the other day in Value Village, an issue from 1972. Daniel Patrick Moynihan ponders how your second term will go. The monotony of factory work, of the automobile assembly line, is also covered.

I'll post the cover next time the charts are interesting; we about done with this minor wave 4 (sideways)?

scott said...

http://stockcharts.com/h-sc/ui?s=%24BPSPX&p=D&st=2015-07-07&en=today&id=p78053512542&a=408867296

http://stockcharts.com/h-sc/ui?s=%24NAHL%3A%24NATOT&p=D&st=2015-04-01&en=today&id=p43428207793&a=391537073

confirmation of the pullback. the signals rarely wrong on the charts I've been posting.

PS - T. Berry you keep repeating that I am telling you what others have told you for the last few years. That couldn't be further from the truth. READ AND REVIEW.

Also, I am NOT telling you to time the market. Just to review some actual data rather mythology for goodness sake. This IS THE TOP OF THE CYCLE. Preserve gains....? Good luck. 3% top to top! Destroy savings and provide CD returns WITH MARKET RISK by financilizing money! LOL

scott said...
This comment has been removed by the author.
scott said...

http://stockcharts.com/h-sc/ui?s=%24VIX&p=D&st=2015-06-26&en=today&id=p14611290996&a=428878359

vix above 200ma at over 17 and macd equity sell really undeniable...

Ponzi Unit said...

Copper on the edge - guard your units.

https://1.bp.blogspot.com/-ex9g5ezHd8I/VkVGBQWRW1I/AAAAAAAADp8/4j8c8su8Kl0/s1600/copper%2B2015%2B11%2B12.png