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The fundamental “something” that is coming started to show up in DXY and EURUSD today but in reverse form than what the intraday and daily charts were suggesting with DXY nearing the bottom of its multi-week sideways trend and EURUSD breaching the top of its range.
EURUSD’s breakout above its last high should be taken as a serious sign that it may try to stage a significant move higher even though DXY’s chart still suggests that it is trying to move higher and so until the two charts align fully, it remains my inclination to believe that DXY will break above 80 soon and EURUSD below 1.300.
That being said, today’s trading in DXY and EURUSD would suggest otherwise and so let’s bring in some of the equity charts that are showing a fundamental “something” to come as well and one that will be significant enough so as to break the congested sideways trading of recent days/weeks and the very hallmark of a shift-to-come in the fundamentals whether to the positive or the negative. Put otherwise, whatever the fundamental something is that investors have been waiting for clarification around for about a month as told by DXY and EURUSD and for about two weeks as told by some of the equity charts will produce a very clear breakout to the upside or to the downside.
Interestingly, this sideways trading is showing only in select equity-related charts including the Russell 2000 and most of the sector ETFs with the XLF showing something that almost looks like a Double Top in the apex area of a decent Rising Wedge and one built of declining volume that accompanies the slowing buying momentum of that pattern.
In turn, the XLF’s chart set-up looks bearish on the Double Top that confirms at $14.39 for a target of $13.92 and the Rising Wedge that confirms below $14.39 for a target of $11.73, but maybe that Double Top pattern turns out to be congestion that takes the XLF higher and this means confirmation at $14.86 for a target of $15.33. Overall, though, XLF’s chart presents in a more bearish light than not and risk-to-reward profile that is skewed toward risk.
Taking a look at the Russell 2000, this sideways congestion shows very well in a relatively well-established Sideways Trend Channel within the bigger Sideways Trend Channel.
Clearly, resistance around the top of the Sideways Trend Channel is proving formidable as the Russell 2000 trades in what looks like a small Double Top, too, and one that confirms at 812 for a target of 791. But even though the Russell 2000 has been balking below the official neckline of its Inverse Head and Shoulders pattern, maybe this seemingly bearish congestion turns out to be bullish by breaking above 833 to confirm that congestion for an upside target of 854.
Returning to the sector ETFs, the XLB continues to look vulnerable to the downside on congested trading that matches that of DXY and EURUSD in duration.
The Rounding Top pattern in the XLB confirms at $36.10 for a target of $34.20 and one that is supported by the unclosed gap at $35 along with a gap at about $34.
Worth noting is the fact that the second half of this Rounding Top is built on declining volume and maybe this supports this pattern breaking to the downside as it “should” rather than to an upside target of $39.90 on confirmation at $38.
Speaking of “shoulds”, though, there are a lot of bearish aspects failing and/or being stretched in the bullish direction before a possible bearish snap and so confirmation is required relative to having any confidence in any of these aspects having a shot of succeeding let alone succeeding.
Interestingly, it is the chart of the VIX that suggests these bearish topping patterns comprised of sideways congestion will break correctly to the downside for declines of 5-7% at least.
It continues to trade in an unconfirmed Inverse Head and Shoulders pattern with the Bull Pennant marked in providing one good reason to think the VIX may spike higher soon. Specifically, the Bull Pennant confirms around 18 for a target of about 22 while the IHS confirms around 23 for a target of 30.
Maybe this pattern set-up fails and something that will probably come on the EURUSD moving higher and the dollar index lower as equities continue to climb into the stratosphere, but there are a greater number of technicals supporting that the fundamental “something” to come will push risk down and probably as the dollar index rises.
Until either such scenario plays out, though, the congestion trades on.
The last six months' market behavior is somewhat breath-takingly similar to the same period a year ago. With global central banks pumping (RoW replacing Fed for now), energy prices soaring, and since the market is the economy - hope is rising that we are doing better; the drivers of the asset price reflation are similar too.
While Treasury yields appear to be bucking this sentiment-euphoria, perhaps it is the because the US is the hottest market and all the world's money comes here that we are 'decoupling'. It seems the stakes are higher and scale of known unknowns even larger this time as the can that we are kicking is gathering a lot of trash as it rolls down the road.
Perhaps the 'events' and collateral needs around CDS roll dates and IMM dates (highlighted in the chart) - which just happens to coincide with the March Greek bond maturity next month - will prove once again that this time its no different.
And from Goldman on the 'similarities':
What’s similar?
A sharp increase in oil and gasoline prices with political volatility mounting in the Middle-East. The most obvious similarity to last year is the fact that crude oil prices have been rising sharply since the turn of the year. Between December and the last week of February 2011, Brent crude prices rose by about 20%. Over a similar period – from December till now – crude prices have risen by about 13%.
While the extent of price rise over this three month period is a bit less this time around, crude prices have started at a higher level. So Brent crude increased from about $89/bbl to about $106/bbl from Dec till late-Feb last year, whereas the move this year has been from $109/bbl to $122.9/bbl. Gasoline prices have also increased sharply both this year and last year.
Since December, the increase in gasoline prices has actually outpaced the one from last year – rising by about 18% this year versus about 10% last year. Last year gasoline prices went on to rise by almost 50% between Dec and end-April, and this was an important part of the explanation of the subsequent US economic slowdown in 2011.
Another disconcerting similarity to last year is the concerns around political volatility in the Middle-East with the potential for supply disruptions coming on top of a tight market. After earlier political unrest in Tunisia and Egypt, Libya was in the throes of a political revolution by mid-February, which rapidly deteriorated into civil war by March.
The ensuing prospect of disruptions from a significant global oil producer caused oil prices to spike further, so that they exceeded $125/bbl by early April. This time around, concerns have been centred on Iran, and the possibility of supply shortfalls from there either because of embargos or disruptions in key shipping lanes.
A backdrop of improving cyclical momentum across the world. The increases in crude oil prices both last year and this year have come against the backdrop of improving cyclical data. From December through Feb last year, our aggregated global PMI measure increased from 55.1 to 56.5. And this year too, global PMIs have increased from 49.6 in November to 51.8 in January.
The difference in levels is worth noting: the oil price increases this year have occurred with PMI levels much lower on average than last year. That said, the increase in PMIs this time around is more even – with increases both in EM and DM, whereas the last year the increase was primarily focussed on DMs. EM PMIs were more or less flat as most EMs were tightening policy to restrain high rates of inflation.
February brought the first signs that the higher commodity prices were beginning to weigh on growth. As oil prices moved higher through February last year, we saw the first signs that growth-sensitive assets started to falter. Our WF US Growth basket peaked in February last year (even as the index itself continued to move higher) after increasing by 12% since December 2010, and this year too, our growth basket has struggled to advance in recent weeks despite the tailwind of better macro data. Other growth-sensitive assets like copper also exhibited a similar pattern.
I don't know when or how long it might take ...might(should) be soon but according to what I'm seeing we should be targeting 798.
It would take to long to explain but if we get under 815 again it's pretty darn likely as I see it.
Probably more immediately we need to get under about 821 to begin to make that happen.
That 798 scenario is still in play but hanging on by the thinest of hairs....the bulls don't want to give up.....
Basically what's going on is they keep trying to bait the bears here but unless they can hold it over 833ish the bears still have a chance the way I see it.
Officially, per the 3% rule, the Nasdaq Composite’s breakout above the top of a more than decade-long sideways range has proven itself to be the real deal by closing 3% above the very top of that range today.
This suggests that the Nasdaq Composite will try for the upside target of that Symmetrical Triangle at 3255 rather than the downside target of 1940 despite its 30% post-Bearish Band-Aid Rip rally occurring on declining volume with the last month resting on an ugly and unclosed gap at 2868.
Technically, it is the Nasdaq’s close at boring old 2986 that is far more important than the Dow’s headline-trumping close above 13000 and something that means very little relative to the Dow proving it is making a sustained breakout above its more recent sideways trend between about 10000 and 12900.
What will prove a sustained breakout by the Dow Jones Industrial Average above that defined sideways trend is a close above 13260 and the level that would equate roughly to the Nasdaq’s close right below 3000.
Interestingly, though, the Dow’s previous breakouts that were 3%+ above its truly long-term sideways trend in dashes and that more recent sideways trend ultimately failed as is well-demonstrated by 2008 and 2009 along with 2011 with 2012 perhaps setting up a Double Top that remains good so long as the Dow is below 13260.
Worth noting as well is the S&P’s close above last year’s intraday high at 1371 with 1412 standing as the 3% rule test around the S&P.
However, the S&P may find itself challenged to hold that positioning considering that it is 5% above its 50 DMA and has been for many weeks now and something that has proven approximately unsustainable in the past as circled.
So far, then, per the charts reviewed, it was a good day for the equity markets and despite the Case-Shiller report that fed its long-term chart that suggests housing prices will drop by another 15-25% as discussed most recently in January 7’s Housing to Take A Triple Tumble?
What, though, is going on with the Russell 2000? Yes, it is up a whopping 11% year-to-date, but it is worth noting its recent pause.
As shown in the daily chart on the following page, the Russell 2000 continues to balk below the official neckline that would confirm its Inverse Head and Shoulders pattern to the upside as it remains stuck in the top part of its sideways range in consolidation that still exhibits lower highs after today along with higher lows to form a Symmetrical Triangle.
Should that pattern follow the other indices up, it confirms at 833 for a target of 854 while it confirms to the downside at 812 for a target of 791.
At this point, it seems more likely that the Russell 2000 will follow the other indices up to 854, but its hesitation may support its bearish Rising Wedge and a potential Double Top that would take it back down to the bottom of the range if not well below it.
Such a potential move by the Russell 2000 and more truly the S&P is showing in the chart of the VIX with its Sideways Trend Channel comprised of bullish Falling Wedges with the possible apex of the VIX’s current FW showing as a Double Bottom and/or Inverse Head and Shoulders pattern in its daily form.
Should those bottoming patterns prove successful, the VIX will shoot up toward 30 while its Falling Wedge carries a target of 48.
It will be interesting to see, then, what comes ultimately of a breakout in the Nasdaq, the sort of holdbacks in the Dow and the S&P along with the RUT’s sideways stall.
If this rally runs out of steam, history suggests the next move down could plumb depths not seen in years.
If the market rolls over here, the next bottom might be a lot lower than most players think possible. After all, the "news" is all positive: Europe's debt crisis is now resolved; employment in the U.S. is trending up, GDP is growing nicely, etc. etc. etc.
As food for thought, here are two charts, courtesy of frequent contributor B.C., that suggest the good news might not only be priced in, but it might abruptly cease flowing. The first chart is of the S&P 500 from 1973 to the present. The current rally has stalled right at a multi-year line of resistance, and a potential A-B-C pattern in a long-term channel suggests a return visit to the March '08 lows around 666, or perhaps even lower. Here are B.C.'s observations:
If a C wave is imminent, a typical pattern is 2 (or 2.382-2.764) x A or a target of the '02-'03 and fall '08 lows, or even as low as the 500s-600s eventually. C = A would imply an idealized target in the 460s and nominal SPX 600s (US$ constant at the current level).
Such a decline in a period of "growth" seems impossible, but we should keep in mind the possibility that four conditions could cause growth to roll over and corporate profits to compress:
1. Rising energy input costs
2. Rising U.S. dollar decimates overseas earnings of U.S. corporations
3. Tapped-out consumers run out of gas (literally)
4. Federal government stops borrowing and blowing 10% of GDP every year Next up, an analog chart of the Nikkei and the S&P 500 (SPX). To align apples to apples, this chart tracks the dollar-adjusted Nikkei from its top in 1989 and the dollar-adjusted SPX from its top in 2000. (For reference, the yen-adjusted Nikkei is also plotted.) Interestingly, the SPX has tracked the Nikkei rather closely--at least until the extraordinary monetary interventions by the Federal Reserve known as QE2 and Operation Twist put booster rockets on the market (with some recent aid from the ECB's LTRO injection of about $1.5 trillion into the banking sector since December).
If the SPX were to continue tracking the Nikkei, the next bottom won't occur until late 2013 or early 2014--two years hence. Here are B.C.'s notes on this chart:
Note how relatively closely the SPX was tracking the currency-adj. corollary with the Nikkei until QE2 and "Operation Twist". Coincidence . . .? I suspect not. Had the SPX tracked the corollary as in '01 and '08, the SPX would be in the 800s-900s by now. Can the Fed and shadow banksters prevent for the next 18-24 months the historical tendency for the SPX to follow the self-similar cyclical and secular patterns? I suspect we are going to witness their ongoing desperate attempts to do so.
The problem for the Fed is that interest rates are already zero, and playing around with bonds and buying more mortgages (the Fed already owns $1 trillion) is ultimately pushing on a string: the Fed can't force all the free money into productive investments, nor can it force banks to lend or consumers to spend.
The cliche is "don't fight the Fed;" there is no need to "fight the Fed" because they're busy self-destructing, and all we have to do is watch.
Maybe the market will follow Apple in a trajectory to the moon here. If it doesn't, a variety of other models suggests the wheels may fall off the "growth and rising profits forever" story and the market will decline to test recent lows or even hit new lows. That's not what the Fed or the politicos want, but events on stage may be slipping beyond their off-stage control.
