Weekend Update www.thepracticalinvestor.com
January 17, 2014
— VIX has been challenging the lower trendline of its Triangle Formation after making a Primary Wave [5] low on December 26. Preliminary evidence of a reversal may come with a breakout above its January 2 high at 14.59. Confirmation of a change in trend lies at 16.06 to 16.75.
SPX bounces above its Ending Diagonal.
— SPX bounced from the upper trendline of its Ending Diagonal, making a new high. However, it closed beneath its weekly Cycle Top resistance at 1843.40. The Orthodox Broadening Top, otherwise known as a “Megaphone” pattern, is still the key formation at this juncture. A decline from this peak through the bottom trendline of the Broadening Top completes the formation and sets up the initial downside target, yet to be determined.
(ZeroHedge) US equity investors have not been this “euphoric” since the peak of the US equity market in 2000. As Citi’s Tobias Levkovich notes, while he is longer-term a believer is the secular bull, one has to remember that there can be a secular run with substantive bumps along the way. No one questions the 1982-2000 equity bull market but there were some awful moments in that 18-year period including the stock market crash of 1987 and the sharp pullback in 1990 as well as in 1998.
NDX closes the week above its trendline.
— NDX closed the week above the upper trendline of its Ending Diagonal formation while making a new high this week. The 4.8 year rally may now be finished. Initial confirmation of a reversal would come with a decline beneath the trendline followed by a further decline below the Cycle Top line at 3481.57.
(ZeroHedge) Following December’s biggest-surge-in-4-years for UMich consumer confidence (though a miss), UMich data has fallen back to 80.4 – missing expectations by the biggest margin in 8 years. This is the 4th miss in the last 5 months as hope for moar multiple expansion begins to fade. Both current conditions and the outlook indices fell (for the first time since October). As UPS would say, confidence dropped because there was too much confidence…
The Euro slides through weekly supports.
.
— The Euro declined through its weekly Intermediate-term support at 136.04, closing beneath critical support for the first time this year. It may be ready to resume its decline this week. Final support is at 133.19 and 130.92, beneath which the Euro decline may accelerate.
(TheGuardian) The backdrop was familiar to students of British politics in the 1970s: rising unemployment, weak growth, a disaffected business community, low productivity and high taxes. Hollande did not use the phrase but everybody knew the subtext of his address: France is now seen as the sick man of Europe.
The Yen challenges its Head & Shoulders neckline.
–The Yen challenged the Head & Shoulders neckline at 95.50, but closed beneath it for a third week. The breakdown to a new low and the inability to close above the neckline suggests a continuation of a Primary Wave [5] in a very strong decline that may last through mid-February.
(Bloomberg) Japanese companies will brave the yen’s drop to a five-year low against the dollar and invest in foreign businesses to seek growth overseas, said a former top currency official.
The dollar around 100 yen isn’t expensive for Japanese businesses that need to make overseas acquisitions as they seek to expand in foreign markets and diversify their operations, Hiroshi Watanabe, governor of Japan Bank for International Cooperation, said in a Jan. 15 interview.
The US Dollar closed above mid-Cycle support.
— USD closed above its weekly mid-Cycle support/resistance at 80.99, making a new high in the process. The dollar’s position in the Cycle may now be considered bullish. The Cycle Model suggests the next phase of the rally may last through late January (possibly longer) that may bring the USD above its inverted Head & shoulders pattern shown in the chart. Surprised Dollar bears may help make this rally a memorable one.
(Reuters) – Currency speculators increased bets in favor of the U.S. dollar in the latest week to their largest in more than five months, according to data from the Commodity Futures Trading Commission released on Friday.
The value of the dollar’s net long position rose to $22.66 billion in the week ended Jan. 14, from $21.11 billion the previous week. This week’s long dollar position was the highest since July 30 last year, despite a much weaker-than-expected U.S. non-farm payrolls report released on Jan. 10.
Gold closed above weekly Short-term support/resistance.
— Gold closed above Short-term resistance at 1240.53 this week. Indications are that gold may test the upper trendline of its trading channel and weekly Intermediate-term resistance at 1270.51 before turning back down. A bearish Cup with Handle formation may be triggered beneath the Lip at 1181.40, so be prepared for that eventuality once gold turns back down. There are simply too many goldbugs who have called for a bottom to be a valid one.
(ZeroHedge) Germany’s blowback against gold manipulation is accelerating. Following yesterday’s report that Bafin took a hard line against precious metals manipulation, after its president Eike Koenig said possible manipulation of precious metals “is worse than the Libor-rigging scandal”, today the response has trickled down to Germany and Europe’s largest bank, Deutsche Bank, which announced that it would withdraw from the appropriately named gold and silver price “fixing”, as European regulators investigate suspected manipulation of precious metals prices by banks.
Treasuries retest the Broadening Wedge and Trading Channel tendline.
— USB is at the juncture of its Broadening Wedge trendline (red) and Trading Channel top trendline. A potential reversal may be in order. The Broadening Wedge suggests a probable 20% loss beneath this resistance level. More importantly, the loss of a long term uptrend is in jeopardy, should it decline beneath 127.35.
(ZeroHedge) Yesterday, when the Treasury released its TIC data early by mistake, the update that China’s holdings rose to a record $1.317 trillion caused a stir. This was confusing, since while China, which as we reported yesterday, now has a record $3.8 trillion in reserves having grown by $500 billion in 2013, has barely invested in US paper, and in fact going back to 2010, its holdings were a solid $1.2 trillion.
Is this the final bounce before the plunge?
— Crude bounced from the neckline of its Head & Shoulders formation this week and appears to be running out of steam beneath Short-term resistance at 95.60. It appears that the bounce may be over and a stunning decline may be in order.
(Investing.com) Better-than-expected data on U.S. housing starts sent oil prices gaining on Friday after investors viewed the numbers as another indication of a more robust U.S. economy, one that will demand more fuel and energy going forward. On the New York Mercantile Exchange, West Texas Intermediate crude for delivery in March traded at USD94.65 a barrel during U.S. trading, up 0.58%. New York-traded oil futures hit a session low of USD94.07 a barrel and a high of USD95.06 a barrel.
China approaches its Cycle Bottom.
–The Shanghai Index consolidated just above its Weekly Cycle Bottom support at 1966.79. There may still be a bounce next week back to the Model resistance cluster at 2126.39 before resuming its downtrend. Once the bounce is complete, it has a high probability of making new lows. The duration of this decline may not be finished until late February to mid-March..
(TheGuardian) Xi Jinping has been installed as head of the Chinese Communist party’s seven-member Politburo standing committee, which makes him the country’s new leader, replacing Hu Jintao. Here are all the members constituting China’s most powerful group of politicians: (see hyperlink)
The India Nifty bounces from Intermediate-term support.
— The India Nifty may have completed its retracement after bouncing from Intermediate-term support at 6147.48 last week. The decline may now resume and continue through mid-February. This decline may be deflationary to an extreme, since equities have become thoroughly saturated with liquidity from India’s central bank and simply cannot absorb any more. Indian investors are leveraged to the hilt. The potential for a panic decline to the weekly Cycle bottom (4778.21) is very high.
The Bank Index reverses from its weekly Cycle Top.
— BKX has challenged its weekly Cycle Top resistance at 71.38 on Wednesday before retreating. The 50% Fibonacci retracement of its 2007 to 2009 decline is at 69.46 and the current Cycle is nearing completion. The resumption of the secular bear market may be most spectacular in BKX.
(ZeroHedge) While manufacturing and services PMIs disappointed, the big problem in big China remains that of an out-of-control credit creation process that is blowing up. As we previously noted, instead of crushing credit creation, the PBOC’s liquidity rationing has forced distressed companies into high-interest-cost products in the shadow-banking world. Investors on the other side of “troubled shadow banking products” had assumed that ‘someone’ would bail them out but this evening Reuters reports that ICBC has confirmed that it will not rescue holders of the “Credit Equals Gold #1 Collective Trust Product”, due to mature Jan 31st with $492 million outstanding.
(ZeroHedge) …one thing that can be quantified (Bernanke’s legacy) and that few are talking about is the unprecedented, and record, amount of “deposits” held at US commercial banks over loans.
Naturally, these are not deposits in the conventional sense, but merely the balance sheet liability manifestation of the Fed’s excess reserves parked at banks. And as our readers know well by now (here and here) it is these “excess deposits” that the Banks have used to run up risk in various permutations, most notably as the JPM CIO demonstrated, by attempting to corner various markets and other still unknown pathways, using the Fed’s excess liquidity as a source of initial and maintenance margin on synthetic positions.
(ZeroHedge) First the Volcker Rule was defanged when last night the requirement to offload TruPS CDOs was eliminated, and now here comes Europe where the ECB just lowered the capital requirement for its “stringent” bank stress test (the one where Bankia and Dexia won’t pass with flying colors we assume) by 25%. From the wires:
ECB SAID TO FAVOR 6% CAPITAL REQUIREMENT IN BANK STRESS TEST
ECB SAYS DECISION ON CAPITAL REQUIREMENT NOT YET FORMALLY MADE
MAJORITY OF POLICYMAKERS AND TECHNICALS OFFICIALS HAVE REACHED CONSENSUS ON THE BENCHMARK
(ZeroHedge) With Greek Prime Minister Antonis Samaras settling into his role as EU President, UKIP’s Nigel Farage stunned the “Goldman Sachs puppet” with a 150-second tirade of truthiness he has likely never experienced. Farage sarcastically remarks how Greeks “will be dancing in the streets” at Samaras’ ‘successful’ negotiation on MiFiD reminding him that “60% of youth are unemployed and the neo-nazi party are on the march.” Europe is now run by “big business, big banks, and big bureaucrats,” Farage goes on, suggesting the smarmy-looking Samaras should “rename his party from New Democracy to No Democracy.”
Regards,
Tony
Anthony M. Cherniawski
The Practical Investor, LLC
P.O. Box 129, Holt, MI 48842
www.thepracticalinvestor.com
Office: (517) 699.1554
Fax: (517) 699.1558
Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security. The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model. At no time shall a reader be justified in inferring that personal investment advice is intended. Investing carries certain risks of losses and leveraged products and futures may be especially volatile. Information provided by TPI is expressed in good faith, but is not guaranteed. A perfect market service does not exist. Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment. Please consult your financial advisor to explain all risks before making any investment decision. It is not possible to invest in any index.
The use of web-linked articles is meant to be informational in nature. It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.
P.O. Box 129 
Email: [email protected]
