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Another Friday, Another Green Close

Published 03/08/2013, 01:29 PM
Updated 07/09/2023, 06:31 AM
VIX
VIX found support at the lower trendline of its Ending Diagonal. The reason the Volatility Index is so low is that no one is buying portfolio protection in the options market. Think about it.

SPX throws over its Ending Diagonal.
SPX
SPX “threw over” its Ending Diagonal upper trendline on Friday. Ending Diagonals most often have a 78.6% relationship between waves. This one does not, making it difficult to identify and track. However, using that relationship as a guideline, the SPX has reached its “ideal length” at 1540.00. In the final stretch, Wave 5 is 61.8% the size of Wave 1 at 1549.90. There’s not much left to finish this pattern.

(ZeroHedge) Another Friday, another green close (now ten in a row) as Treasuries suffer their biggest weekly yield rise in a year. Another new-er-er all-time nominal high for the Dow but Nasdaq was the winner on the week (+2.7%) against a cluster of the rest at +2.4%. Volume was sub-par at best, trade-size low, and market breadth diverged bearishly but that didn't matter.

NDX sits on the edge of a dangerous formation.
NDX
The NDX bounced off Short-term resistance at 2757.90 and closed at its highest point of the year. However, it did not exceed its September 21 high at 2878.38. While investors have been focused on the Dow 14,000, the NDX has been signaling weakness since mid-November. The Model supports run out at 2680.00-2700.00. The Ending Diagonal is triggered just above 2600.00. Things may happen rather quickly after that.

(ZeroHedge) The past week brought us history: on Tuesday, GETCO and Citadel's HFT algos were used by the Primary Dealers and the Fed to send the Dow Jones to all-time highs, subsequently pushing it to new all time highs every single day of the week, and higher on 8 of the past 9 days: a 5ish sigma event. But there is never such a thing as a free lunch. And here is the invoice: in the past 5 days alone, total Federal Debt rose from$16.640 trillion to $16.701 trillion as of moments ago: an increase of $61 billion in five days, amounting to $198,697,068 for every of the 307 Dow Jones Industrial Average points "gained" this week. Because

remember: US debt is the asset that allows the Fed to engage in monetization and as a result, hand over trillions in fungible reserves to banks... mostly foreign banks.

The Euro sits on a probable Head & Shoulders neckline.
XAU

The Euro found support at 129.55 at what appears may develop into a Head & Shoulders neckline. Whether it bounces even more remains to be seen, but there’s enough of a squiggle there to imply neckline support and a miniscule right shoulder. This may be the last bastion of support for the Euro prior to a decline to its Cup with Handle formation at 120.95. The Cycles Model suggests a decline in the Euro into mid-March, which may take the Euro well below that level.

(ZeroHedge) The France-based ratings agency has just joined China's Dagong, and US Moody's by Fitch-slapping Italy with a BBB ratings handle. Citing four main reasons: election results which are 'non-conducive' for further structural reforms, deeper than expected recession, greater than expected budget deficits, and a weak government less able to respond to shocks. But apart from all that, as we noted earlier, Italian stocks and bonds are bid.

The US Dollar rises.
US Dollar
USD continues its rally toward the neckline of a large inverted Head & Shoulders formation. The Cycles Model suggests that USD is in the first leg of a new Master Cycle that may last through mid-March. The Head & Shoulders formation may offer the base for a new Primary Cycle rally that may surprise many with its strength..

Gold rests on a trap door.
GOLD

Gold remains atop the Lip of its Cup with Handle formation at 1560.00 for a third week. There is a chance of a brief spike back up to mid-Cycle resistance at 1629.22 or Long-term resistance at 1661.54, but it hasn’t shown signs of making that move yet. On the other hand, a flash crash may be imminent. The two formations triggered on the chart are a lethal combination. Caution is advised.

(ActingManBlog) Since the start of January, gold ETFs have dumped 140 tonnes of gold. February saw the largest monthly outflow of gold from ETFs on record.

The sell-off is partly a reflection of broader negative sentiment towards gold, as investors become more confident in the global economy and put their money into riskier assets such as equities.

The bounce is over for Treasuries.
USB
USB fell through Short-term support this week, ending a less-than-enthusiastic retracement attempt. Treasuries are going into the most powerful part of their decline as they decline into a Primary Cycle low over the next two weeks. The most probable target may be the 32-year long trendline near 122.50.

(ZeroHedge) The first two months of 2012 saw a 582,000 increase in non-farm payrolls. In 2013: 355,000. But something else happened between February 29, 2012 and February 28, 2013. Oh yes, the US government issued some $1,198,397,883,967.30 in debt. Oh, and the Fed monetized about half of this amount, and virtually all of the Treasurys issued to the right of the ZIRP period (i.e., risky debt).

Crude is between support and resistance.
WTIC
West Texas Intermediate Crude Closed bounced above its Long-term suppport at 90.59, but stalled at Intermediate-term resistance at 91.83. If it catches a bid on Monday, it may continue to mid-Cycle resistance at 94.77. Don’t expect the rally to last, since it it has a date with Cycle Bottom support and the Head & Shoulders neckline in the next two weeks.

(OilPrice.com) Back in 2006-2007 when I was writing about peak oil, I would never have believed that U.S. crude oil production would reach 7 million barrels-per-day in the last month of 2012. But if we look at the EIA's latest data, that's what happened.

U.S. crude oil production exceeded an average 7 million barrels per day (bbl/d) in November and December 2012, the highest volume since December 1992. The end-of-year data were reported on February 27 in EIA's Petroleum Supply Monthly.

China stocks retest Short-term support-turned resistance.
SSEC

This week the Shanghai Index fell throught Short-term support at 2330.23, but bounced back to retest it. The retracement is now over and SSEC appears ready to resume its decline. The next serious suport is at Long-and Intermediate-term support at 2201.85 to 2215.43. Below that is potential free-fall territory as Cycle Wave III begins.

(ZeroHedge) The main news overnight was the Chinese February trade balance, which if the past several years were any indication, would have been a deficit in keeping with the cyclical economic weakness resulting from the Chinese Lunar New Year. Surprisingly, instead of a deficit, as SocGen explains Chinese exports came in massively above expectations in February, while imports were on the weak side. The strength of exports was bewildering, especially when it was, to a large part, a result of strong exports to the G2.

The India Nifty stages a strong retracement.
CNXN
The India Nifty has staged a strong rally backk through all its support/resistance levels. This constituted roughly a 64.5% retracement, which is not out of the ordinary. A reversal here may propel CNXN to or through Cycle Bottom support at 5145.63.

The Bank Index surges above its Diagonal pattern.

BKX

BKX threw over its Ending Diagonal upper trendline to close at a three-year high this week. This rally is becoming very old in the tooth and demands a complete retracement when it breaks down. Time is beginning to run out for this decline. However, instead of making it milder, the decline may end in a Flash Crash as very deep targets must be met in a shorter period of time.

(ZeroHedge) "In a stunning headline-making moment of clarity, it appears that all the major financials that the Fed monitors (except GMAC Ally) will survive a cataclysmic, Lehman-like moment based on their self-determined analytics of their deeply illiquid off-balance-sheet assets (and a comprehensive understanding of the co-dependence of all those assets)." As Bloomberg notes,

*TESTS ASSUME HYPOTHETICAL SCENARIOS FOR 9 QTRS ENDING 4Q 2014

*FED SAYS 18 BANKS PROJECTED LOSSES WOULD BE $462B UNDER TEST

*FED SEES 17 BANKS' TIER 1 COMMON RATIO ABOVE 5% IN WORST CASE

*GMAC ALLY ONLY STRESS-TESTED BANK SEEN WITH TIER 1 COMMON BELOW 5%

*TESTS SCENARIO ASSUMES EQUITY PRICES DROP MORE THAN 50%

*TESTS SCENARIO ASSUMES HOUSING PRICES DECLINE MORE THAN 20%

(Bloomberg) Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) lagged behind peers in a key measure of capital strength used by U.S. regulators to stress- test their resiliency in a severe recession.

The three firms submitted more-optimistic estimates of their capital strength and ability to avoid losses on trading and lending than Federal Reserve projections released yesterday for the 18 biggest U.S. banks. Of the three, the gap was widest for Goldman Sachs, which predicted that its Tier 1 common ratio may fall as low as 8.6 percent in a sharp economic downturn, compared with the central bank’s 5.8 percent estimate.

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