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Weekend Update: New Lows Reached, Momentum Building For Next Thrust

By Anthony M. CherniawskiMarket OverviewOct 09, 2012 08:02AM ET
www.investing.com/analysis/weekend-update:-new-lows-reached,-momentum-building-for-next-thrust-139196
Weekend Update: New Lows Reached, Momentum Building For Next Thrust
By Anthony M. Cherniawski   |  Oct 09, 2012 08:02AM ET
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VIX
VIX


VIX closed below its 10-week moving average at 1494, a setback from the prior week. There are two noteworthy items on the chart. The first is that no new lows were made. The second is that Stochastics are building momentum for an upward thrust.

SPX reversal still valid
SPX
SPX


SPX retested its upper trading band at 1470.49 again this week, but could not make a new high. The reversal remains valid. Not shown on this chart is a potential crash trigger at the lower trendline of a small Broadening at 1395.00. This chart shows two of three or four potential Broadening Wedges that may cause a “pancake effect” as the decline breaks the supports of these formations, one after another. The result may be a much deeper than normal decline.

NDX bounces above its 10-week average.
NDX
NDX


The NDX bounced above its 10-week moving average at 2788.27 and closed positive for the week. At issue is that there are no further supports once it drops beneath it until mid-Cycle support at 2377.63. The NDX is known for its swift declines when the top is finally in.

Why High Frequency Trading Will Never Go Away

What is amusing is that people still don't understand why the exchanges, and the regulators (coopted by the exchanges) allow HFT to continue. Here is the answer: in 2011 the CME made 31.5% of all its revenues from HFT, the ICE: 25.1%, the NYSE: 21.4%, the Nasdaq: 17.1%, the CBOE: 22.4%, and so on.

The Euro is ready to decline again.
XEU
XEU


The Euro has completed a reversal pattern from its recent top at 131.72. It is now in one of the most bearish of Elliott Wave counts, a third wave at three degrees. The following weeks should see a strong and persistent decline in the Euro. There may even be panic in the market outlook for the Euro.
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(ZeroHedge) Europe's misery has continued to rise in the face of an ever-easing ECB and political jawboning. As SocGen notes today, the UK's misery has turned back higher and the Euro-zone's Misery Index has never been higher. These misery indices clearly reflect deteriorating economic performances in the main G10 countries, with some unsurprisingly weaker performances in Spain and Greece, leading the eurozone index higher.

The US Dollar building a base for the next rocket launch.
US Dollar
US Dollar


USD continued its backing and filling above its lower Triangle trendline and weekly mid-Cycle support at 78.38. This formed a potential right shoulder for the inverted Head & Shoulders at the same Triangle trendline as the left shoulder. Because this pattern is not apparent in the daily charts, there is very little awareness of it and the ramifications of a powerful new trend in the Dollar.

Gold has made a reversal pattern.
Gold
Gold

Gold made a new high this week, but it is the final thrust of a Broadening Top (not seen on the weekly chart). The implications for gold are enormous, since this is a pre-crash pattern. Investor sentiment is off the charts, suggesting there has been virtually no preparation for the panic to come. This is ripe for a reversal of trend. Will the fruit fall off the tree this week?

(ZeroHedge) Do Western Central Banks Have Any Gold Left???

Somewhere deep in the bowels of the world’s Western central banks lie vaults holding gargantuan piles of physical gold bars… or at least that’s what they all claim. The gold bars are part of their respective foreign currency reserves, which include all the usual fiat currencies like the dollar, the pound, the yen and the euro.

Treasuries may have broken the Wedge as hedge funds place their bets.

USB
USB

USB appears to have broken beneath the lower trendline of its 43-month old Ending Diagonal formation and the 10-week moving average at 147.93. This may now send USB considerably lower. Ending Diagonals are usually completely retraced, suggesting a decline below its 31-year trendline and a target near Cycle Bottom support at 114.26. This forecasts a massive technical breakdown. A further decline may spark the first flash crash in bonds, which nobody is expecting. See below.

(Bloomberg) Treasuries fell for the first time in three weeks after a report showing the U.S. unemployment rate unexpectedly declined renewed concern the Federal Reserve’s commitment to strengthen the economy may stoke inflation.

Even so, hedge-fund managers and other large speculators increased bets the 10-year note will continue to rally in the five days ended Oct. 2, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 161,790 contracts on the Chicago Board of Trade. Net-long positions rose by 78,264 contracts, or 94 percent, from a week earlier.

Crude declines into bear country.
WTIC
WTIC


After a brief retest of its mid-Cycle support at 93.21 and the 10-week moving average at 94.34, West Texas Crude reversed lower this week, closing below all Cyclical supports. Crude is now in a position to start accelerating downward..

Is the China market an inverse of the U.S. market?
Shanghai Index
Shanghai Index


The Shanghai index has no news for the week as the Chinese people are on holiday. I have been discussing the observation that the Chinese market is not on the same Cycle as the U.S. for some time. Now it appears that Chinese equities may be behaving exactly inversely to the U.S, stocks. Happy investing!

The India Nifty had a flash crash on Friday. More to follow?
CNX Nifty
CNX Nifty


The India Nifty appears to be developing cracks in its facade as attempts to reach Cycle Top resistance at 6025.33 have failed. The Liquidity Cycle finally finally started exerting its downward pull on Friday with a 15% flash crash and partial recovery. The decline may resume on Monday with more fireworks, including a Head & Shoulders neckline at 4560.00.

(ZeroHedge) While we have grown accustomed to the daily gyrations on mega-volume in the US equity markets, it seems the HFT-virus has spread as far afield as India this evening. India's National Stock Exchange was halted - with no price dissemination - as State Bank of India plunged over 14% in seconds on massive relative volume (and HDFC and Infosys also fell), dragging the Nifty Index down 3%. Of course, the 'error' is being investigated and SBIN has recovered its losses...

The Bank Index makes a weekly reversal pattern. A waterfall ahead?
BKX
BKX

BKX has concluded what appears to be a reversal pattern. A decline beneath its 10-week moving average at 48.64 or mid-Cycle support at 46.07 confirms the reversal of trend and a probable flash crash in the week ahead. The efforts of the Fed to re-liquify the banks created a cycle inversion. This “kick the can” mentality on Wall Street only makes the inevitable declines worse. The problem with the banks is insolvency, not illiquidity.

(ZeroHedge) …very soon banks would be swamped with a tsunami of litigation. And after all, it's only "fair" - the banking industry would not exist if it wasn't for the Fed and government's bailout and backstop of tens of trillions in liabilities at the peak. Now it's time for some "wealth redistribution" - only instead of said government-funded wealth tricking down to the common man, the only social group set to benefit are America's lawyersvarious "environment charges" aka charges related to mortgage put-backs, legal and foreclosure related issues, have soared to a record 16% of pre-provision earnings. As Goldman calculates, this is reducing EPS and returns by an average 17%! Where it this "profit" going? Mostly to various class action suit organizing law firms and to pay for $800/hour legal retainers.

Trouble ahead in Europe?

(ZeroHedge) In case there is still any wonder why absolutely nobody has no faith in the centrally planned house of cards that is the modern capital markets system, not retail investors, not institutional ones, not HFT vacuum tubes lately, and as of Monday, not even the Bank of International Settlements, aka the central banks' bank, here it is. In a report released yesterday, the BIS complained surprisingly loudly that in glaring disregard for the ever stricter demands of the Basel III rules (which incidentally will never be met), a very broke Europe continues to ignore every regulatory demand. To wit: "The EU’s plans for tightening bank capital rules fail to live up to the Basel III banking reform, an inspection team of global regulators has decided. The draft EU directive is “noncompliant” with the global deal in two important areas. Its definitions of top-quality capital are looser in at least seven ways and a loophole allows many big banks to assume that their sovereign debt holdings are risk-free."

No Exit for the Fed?

(ZeroHedge) The onset of QEternity likely means the Fed's balance sheet will grow to over $4 trillion within the next year and, as UBS notes, although the Fed has suggested that it will not begin an exit strategy until 2015, the magnitude of the excess balance sheet argues for considering whether the Fed has the ability to unwind their balance sheet. We, like UBS, believe that the Fed will find it far more difficult to exit than they have found it to enter given the limitations of the exit tools frequently cited.
Weekend Update: New Lows Reached, Momentum Building For Next Thrust
 

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Weekend Update: New Lows Reached, Momentum Building For Next Thrust

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