Wednesday, April 28, 2010
The Volatility Index (22.81) is at the 200 day exponential moving average at Tuesday's close. The chart shows that the 200 day ema has been a formidable barrier in the past, but when the 200 day ema is taken out volatility levels can easily double. Increases in volatility accompany market declines. The VIX behavior at this juncture will reveal where the market wants to go.
Tuesday, April 27, 2010
Much has been written about Fibonacci retracement levels, but as most students of the market are painfully aware these retracement levels don't always indicate market pivot points when price amplitude is used exclusively.
However when the element of time is factored in to the analysis results that are consistent with the PHI multiples can be demonstrated as well. This is accomplished by comparing the triangulation of bull and bear campaigns to each other.
Duration of Bear Market: October 11 2007-March 06, 2009 = 512 days
Duration of Bull Market: March 06,2009 - April 26,2010 (recent high) = 416 days
TIME RATIO = 512/416 = .8125
Amplitude of Bear Market 1576.09- 666.79 = 909.30
Amplitude of Bull Market 1219.80 - 666.79 = 553.01
PRICE RATIO = 553.01/909.30 = .6081
Time Price Harmonic = .8125 * .6081 = .4941
Duration of Bear Market: July 13 2007-March 06, 2009 = 602 days
Duration of Bull Market: March 06,2009 - April 26,2010 (recent high) = 416 days
TIME RATIO = 602/416 = .6910
Amplitude of Bear Market 926.67 - 397.97 = 528.70
Amplitude of Bull Market 852.90 - 397.97 = 454.93
PRICE RATIO = 454.93/528.70 = .8605
Time Price Harmonic .6910 * .8605 = .5946
Duration of Bull Market: March 06,2009 - April 26,2010 (recent high) = 416 days
TIME RATIO = 416/512 = .8215
Amplitude of Bear Market 14198.10-6469.95 = 7728.15
Amplitude of Bull Market 11258.01-6469.95 = 4788.06
PRICE RATIO = 4788.06/7728.15 = .6196
Time Price Harmonic = .8125 * .6196 = .5034
Both the DOW and the S&P 500 are near the 50 percent TPH, while the MIDCAP S&P 400 is approaching the 61.8 percent harmonic.
Creases in the Bubble.
On Tuesday, the S&P 500 closed @ 1183.71 below the 21 day ema of 1192.35. This suggests that a correction--at the very least--is commencing.
The close, last week's low and 21 day ema are as follows:
S&P 500: 1183.71, 1197.87, 1192.35
S&P 400: 825.61, 808.94, 819.65
DJIA: 10991.99, 10940.60, 11014.14
Trade according to your personal trade implementation plan.
S&P & DOW
21 day ema: 1192.35 -- 11014.14
55 day ema: 1163.74 -- 10784.19
200 day ema: 1093.63 -- 10177.95
last week's low: 1183.68 --- 10973.92
The fact that the S&P has reached the 61.8 level coincident with the 50 percent triangulation shown below suggests that resistance may be experienced at this price level and time frame.
Monday, April 26, 2010
- The Time-Price triangle (C) from the March 06, 2009 low to the January 11 2010 intermediate high is .334 percent of triangle A which represents the 2007-2009 Bear Market (A)
- The Time-Price triangle (B) from the March 06, 2009 low to the recent high (April 23,2010) equals 50 percent of triangle A
Three cycles are isolated:
Decline Cycle: Oct. 2007-Nov 2008
Initial Bull Cycle: Nov. 2008- June. 2009
2nd Bull Thrust: July 2009-Oct. 2009
Goldman commenced a rally in February of 2010, rallying from 147.40 until it met resistance in the 180-190 area. As can be seen in the chart all three cycles come into play in this time frame and price level. GS peaked at 186.41 and has since tumbled to 155 as a consequence of the civil charges being laid against the once venerable titan of finance.
It will be interesting to see what price GS will be trading at when the 'Decline Cycle' terminates in the first two weeks of July 2010.
Friday, April 23, 2010
Monday, April 19, 2010
This could quite possibly represent a top of major significance since the market psychology at this point has deviated from reality--P/C ratios, Consensus Numbers, media exuberance with economic performance etc. As mentioned previously the behavior of the exponential moving averages will reveal the 'path of least resistance' for the market. Currently the important emas are as follows:
- 21 day 1181.72
- 55 day 1153.22
- 200 day 1086.60
- The 2.618:1 natural support line (NSL) from the November low is near the 21 day ema
- The 1.618:1 NSL is near the 55 day ema.
It remains a distinct possibility that the S&P 500 may continue its rally after a brief set back and attempt the 1233-1237 level which represents a harmonic price window based on the rally that commenced in March 2009. If this was to occur, the 1233 level would likely be reached in an Energy Date (ED) period. (May EDs will be posted later this week.)
Monitor the markets for tests of the ema/NSL levels and for crossovers of the exponential moving averages.
If a significant top is being formed, once a breakdown is confirmed possible downside targets will be calculated--be prepared to see some projections FAR BELOW current levels. The markets could be at the edge of an abyss.
A breakdown of the SSE is not a healthy development in the global recovery scenario.
Friday, April 16, 2010
If the volcano continues to spew ash--or its sister volcano erupts--the economic effect will be significant, ranging from airlines to agriculture. It is amazing how quickly the ash spreads. If Yellowstone ever became active and ash was carried in the jet stream east, the economic and social consequences would become a matter of great concern in America--the same scenario could play out in Europe.
- The first cycle (red) emanates from the 104.88-122.81 rally that occurred between June 2008 and March 2008.
- Prices briefly shot outside the circle when T-Bonds made the ultimate high @ 142.66--but quickly collapsed following the arc until the termination of the cycle which occured at the 124.56 intermediate low in February of 2009.
- Note how prices advanced up the arc of the .50 radius between July and September of 2008--making a high @ 124.73 just after the .50 rad terminated.
- The 4.236 (1.618)3 natural support line (light blue) starting at the 104.88 low provided support and then resistance during the entire time frame shown.
- The 1.618 natural resistance line (blue from 142.66 high) has contained prices during the decline and now represent nearby resistance at 117.61.
- If vertical and horizontal lines are drawn from the 'cardinal points' of the circles important turning points are intersected.
- The Green cycle is constructed using the 142.66 high and 113.12 low during the December 2008-June 2009 decline. Note how the .618 radius marks the 133.89 high in March of 2009.
- It is fascinating how the two .618 radius cycles (the thick red and green circles market .618r) touch together in October of 2008 in the midst of the financial crisis exactly at the price level where the Bond market fluctuated with extreme volatility. (The Yellow HIGHLIGHTED AREA) This is not a coincidence even though both circles appear to be unrelated based upon their respective origins.
- Note how the linear cycle (purple at the bottom on the left side of the upper graph) is 'reflected' on the right side of the graph--the .50 and .618 segment of the reflection pinpointing intermediate highs. (October and December 2009)
- There is a high probability of a trend change or acceleration in the Late June-Early July 2010 time frame since the linear cycle shown on the bottom terminates at the EXACT same time as does the cycle representing the decline from 142.66-113.12--Green Line and Blue circle. Look at June-July 2010 for convergence of the 2 cycles.
Goldman Sachs Group Inc was charged with fraud on Friday by U.S. securities regulators in the structuring and marketing of a debt product tied to subprime mortgages.
The Securities and Exchange Commission lawsuit alleges that Paulson & Co, a major hedge fund run by the billionaire John Paulson, worked with Goldman in creating the collateralized debt obligation, and stood to benefit as its value fell, costing investors more than $1 billion.
Fabrice Tourre, a Goldman vice president who the SEC said was principally responsible for creating the product, was also charged with fraud.
Paulson has not been charged. "Goldman made the representations here to the investors, Paulson did not," SEC enforcement chief Robert Khuzami said on a conference call.
Spokesmen for Goldman and Paulson had no immediate comment. Tourre could not immediately be reached.
The lawsuit, filed in Manhattan federal court, marks a dramatic expansion of regulatory efforts to hold people and companies responsible for activity that contributed to the nation's financial crises. It also comes as lawmakers in Washington debate sweeping reform of financial industry regulation.
"This is big," said Walter Todd, a portfolio manager at Greenwood Capital Associates LLC. "Reputationally, obviously, it is damaging. I'm still kind of in shock."
In morning trading, Goldman shares sank $22.30, or 12.1 percent, to $161.97 on the New York Stock Exchange. Other bank stock also fell.
GOLDMAN HID INFORMATION, SEC SAYS
In its lawsuit, the SEC alleged that Goldman structured and marketed a synthetic collateralized debt obligation, ABACUS, that hinged on the performance of subprime residential mortgage-backed securities.
It alleged that Goldman did not tell investors "vital information" about ABACUS, including that Paulson & Co was involved in choosing which securities would be part of the portfolio. It also alleged that Paulson took a short position against the CDO in a bet that its value would fall.
According to the SEC, the marketing materials for the CDO showed that a third party, ACA Management LLC, chose the securities underlying the CDO.
Paulson & Co paid Goldman $15 million to structure and market the CDO, which closed on April 26, 2007, the SEC said. Little more than nine months later, 99 percent of the portfolio had been downgraded, the agency said.
"In sum," the complaint said, "Goldman Sachs arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors ... Paulson's role in the portfolio selection process or its adverse economic interests."
Thursday, April 15, 2010
Tuesday, April 13, 2010
The top part of the USDX chart is a good example of how Fibonacci ratios and vectors interact during a market campaign.
- The waves of the rally are revealed in the MACD study.
- From the December low @ 74.23 the market has remained above the 1.618:1 uptrend line. Prices temporarily fell below this natural support during Wave 4 correction. This week, prices broke significantly below the 1.618 support line--finding support at the 89 ema.
- The break of this trendline was coincident with the termination of the cycle represented by the blue 2r circle. (2 times the vector representing the Dec 2009 initial rally off the 74.23 low.) Note that the 1.618r cycle caught the bottom of wave 4.
- Longer term (lower part of chart graphic): Two Fibonacci retracement levels are providing both resistance and support. The recent 82.24 high is near the 61.8 percent retracement of the March 2008-March 2009 bull campaign--and also near--the 50 percent retracement of the March 2009-December 2009 decline. The 38.2 percent and 50 percent retracements of the respective lows are providing support near the bottom of wave four.
- The USD met resistance at the 2.618:1 downtrend line off the March 2009 high.
- The .786 vector representing the March 08-09 rally is fully extended at the recent high (red circle). Its influence is evident by the fact that it was coincident with the Dec 2009 low. The market then climbed the arc until the top of the third wave. (early March 2010)
A Contrarian's dream was revealed on the cover of Newsweek yesterday. This is not to say that the jubilation cant get anymore boisterous--but the cockiness of the herd is beginning to show.
Volume momentum is continuing to ebb--forming a downtrend while the S&P rallies higher. A bull needs reinforcing volume to sustain itself.
The 5 Day Trin has turned up from being at an extreme that often suggests market exhaustion of the current intermediate trend. This adds to the mounting evidence of a tired market.
The chart below show the natural support structure of the current rally which commenced March 06 2009.
- Prices stayed above the 1.618 uptrend line until the correction that followed the 1101.36 top.
- The .618 portion of the vector representing the March 2009-October 2009 rally (666.79 to 1101.36) is exhausted in the current time frame. As the blue circle indicates, prices are breaking to the outside of this cycle--which means other dynamic forces within the remaining .382 of the cycle will exert their influence. Prices at cycle termination points often become volatile. Monitor the VIX for clues with regard to imminent market volatility.
- Prices are contained by the red uptrend line extended from the 1101.36 high and to the 1150.45 high. With 1215-1223
The chart below may hold the key to how the USDX and S&P will resolve themselves. The neckline is holding on the 30 Yr Treasuries and a spirited rally is currently underway. The action in the bonds over the next few sessions may determine what the other markets will do.
Monday, April 12, 2010
The ADX is currently at 32.44--slightly below the 35 threshold but it is setting itself up for a sell pivot in classic fashion. As the market continues to rally--possibly into the 1218-1223 level on the S&P--the ADX should be monitored closely. A turn of the ADX line from an extreme is an excellent piece of evidence to use in conjunction with a 'trigger' to initiate or exit a trade.
Sunday, April 11, 2010
It is refreshing to see someone with credibility tell it like it is.
Could 'Reaganomics' and Ayn Rand being going down in flames together?
While watching the interview think of who made the following statement. (Answer below video.)
"The house-price bubble, the most prominent global bubble in generations, was engendered by lower interest rates, but it was long-term mortgage rates that galvanized prices, not the overnight rates of central banks, as has become the seeming conventional wisdom."
Answer: Alan Greenspan.
I am perplexed,perhaps Mr. Greenspan should have taken an Economics 101 refresher course instead of memorizing Atlas Shrugged. Does the concept of yield curve ring a bell?
Friday, April 9, 2010
Thursday, April 8, 2010
Currently the market still has walls of worry to climb, although they are becoming increasingly rhetorical rather than substantive. It is when these perceived threats appear to be settled-- causing the press and commentators to look the other way and begin to sensationalize positive news items--that the foundations of the market will begin to rumble, rousing the bear from her self imposed exile. Suddenly the street will once again focus on the bugaboos that have been ignored. Perhaps a bear--when it does arrive--will be relentless and wreak havoc until Wall Street acknowledges and assumes responsibility for the peril it has placed our society in.
Below are two charts that are contrarian in nature. The major top in 2007 came after an extended period of excessive bullishness. As can be seen the market is just beginning to enter into an over-extended state. It is at this stage of a market campaign that investors become complacent and careless-- in some cases narcissistic. It is time to be prudent and to keep a watchful eye on the currency, metal and bond markets.
55 Day Moving Average of the 'TRIN'
ISEE Equity Call-Put Ratio
One thing can be fairly certain during the euphoric stage of a market advance: The public will become enthralled with a specific asset class and savings will be invested in the 'appropriate' investment vehicles. In 2000 it was Hi-Tech--in 2007 investment funds were focused on real estate--lamentably much of the invested money was highly leveraged--remember NINJA mortgages. As has always been the case--the public get fleeced just like sheep do once they are penned. What cliff are the lemmings running towards today? U.S. BOND FUNDS!
Considering the topic of last night's blog and the discussion in this blog, it is a good time to be exceptionally attentive of the bond market. If the Bond market does get into trouble at some point, plenty of things can go wrong--especially now that the public money is committed.
For a great discussion on this topic check out US Retail Investors’ Love Affair With Bonds Continues at Traders Narrative.
The Quarterly Report on Bank Derivatives Activities published by the Comptroller of the Currency exhibits the size of these largely unregulated markets as well as the credit risk exposure and revenue figures for the 5 largest U.S. Banks. (JPMorgan Chase,Bonk of America, Goldman Sachs, CitiBank and Wells Fargo.
- Goldman derives near 70 percent of its revenue from the derivatives business.
- Interest related derivatives have been profitable for all but one quarter--4th 2008 which is when the bond market traded chaotically: the 30 Year Treasury Bond shot from 112 to 142 in that period. Derivatives thrive on volatility--but have demonstrated on several occasions they don't handle excessive volatility well.
Wednesday, April 7, 2010
The counter trend resistance line from 989.60 intersected the 1.618 arc at the 1226.40 high.
Gold is currently testing the inverse PHI/1 resistance at 1135-1140. If this resistance is overcome Gold could rally further--perhaps testing the Dec 2009 high @ 1226.40.
Cycles are indicating that May 20-24th will be an important time frame for Gold.
The shorter term chart beloew indicates how prices have been contained in the fibonacci retracement levels and the fibonacci fan lines coming off the 1226.40 high of December 2009. THe recent rally commenced when the .618 cycle from the high (inner blue circle) intersected the cycle of the 1044.80-1144.80 rally. (purple circle). A break above the 1158 level would suggest continued strength in GOLD.
The XAU chart is indicating strength similar to the GOLD chart. Prices have sound support at the fibonacci fan line (2.618:1) emanating from the October 2008 low @ 63.52. The parallel fan line extended from the June 2009 high touched the 198.32 high at the same time that the .618 cycle from the first advance (Oct 08 - June 09) (inner blue circle)
Currently prices are testing the 2.618: 1 resistance fan line coming from the 198.32 high.
A decisive break above 180 will bode well for higher prices.
Tuesday, April 6, 2010
Monday, April 5, 2010
This is a chart of the 30 Year Treasury Bond Yield. (Presented as a POTENTIAL Reverse Head & Shoulders)
When the Levee Breaks is a song in reaction to the upheaval caused by the Great Mississippi Flood of 1927.
When the Levee breaks, mama, you got to go."
Kansas Joe McCoy & Memphis Minnie (1929)
Friday, April 2, 2010
On Dec 06, 2009 the case for the US Dollar Index making a significant secondary low was presented. This market has now entered an important time and price harmonic from the Nov. 27 - Dec 02 Low @ 74.23.
The three year chart shows two cycles ending in mid to late April. The USD has retraced 50% of the Mar 09--Dec 09 @ 81.93. (recent high = 82.24)
The chart below shows the rally from late November-early December 2009 from 74.23. There is now a distinct 5 wave structure being formed coincident with two important short term time harmonics--March 24-27. The are two price extensions (1.618 & 1.236) that are approximate to the 50% retracement of the last bear campaign. (2009)
- 82.24: Recent high
- 81.93: 50% retracement from the Mar-Nov 2009 Bear.
- 82.44-82.46: Harmonic price level formed from current advance structure.
- 79.51: Low of CD
- 79.02-79.27: 89 and 200 day exponential moving averages.
- April 19-22nd: Time harmonic based on current structure.
The near term direction of the U.S. Dollar will likely be an antecedent event that will effect the behavior of several markets. Caveat Emptor.