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Weekend Update | www.thepracticalinvestor.com<\/a><\/strong><\/p>\n March 21, 2014<\/p>\n — Although the VIX closed lower for the week, it may be signaling a breakout ahead as it builds a higher base. \u00a0This is the prelude to a probable run to the top of the chart that may occur over the next several weeks. \u00a0The VIX is considered a leading indicator<\/a> of the direction of the SPX.<\/p>\n SPX remains above the Wedge trendline.<\/p>\n SPX peaked today at 1883.97, just .40 above its March 7 high of 1883.57. \u00a0It appears that equities are running out of steam, since there was no confirmation of its ever-so-slight higher high from the Industrials. \u00a0There is a minute Broadening Wedge whose trendline matches the upper trendline of the Bearish Wedge. \u00a0A decline beneath the Bearish Wedge trendline is an important step in reversing the trend. \u00a0Long-term support at 1743.61 is the next level of support and the likely target once the upper supports are broken.<\/p>\n (ZeroHedge<\/a>) \u00a0Once European markets closed, US equity markets gave up any correlation with JPY crosses\u00a0and began to fade. After bouncing off early Nasdaq-Biotech-driven lows, a ramp of AUDJPY saved the European close but that was it. There does not appear to be any news catalyst to drive this dump as Quad-witching pumps are unwound.\u00a0The S&P 500 and Russell 2000 join the Trannies and Nasdaq in the red from the FOMC statement.<\/p>\n NDX fails to make a new high, closes at support.<\/p>\n NDX failed in its Friday morning rally to make a new high, leaving the March 7 high standing. \u00a0It closed just above Cycle Top support at 3640.47 and Short-term support at 3622.35. \u00a0Cycle Top has been its support since the October 9 low, with the exception of the brief decline in early February. \u00a0This support must be broken to begin the change in trend.<\/p>\n <\/p>\n (ZeroHedge<\/a>) \u00a0Quad-witching\u00a0only added to an extremely volatile week as\u00a0the entire bond, stock, FX complex pumped and dumped on the basis of whether a “considerable period” was really six months and whether “quite some time” was more or less than six months. The S&P hit record highs early on this morning thanks to a ramp in AUDJPY (but once again bonds didn’t blink). All that ended when Europe closed and the\u00a0Biotech sector’s weakness spread, leaving the Nasdaq -1.4% post-FOMC (and all other\u00a0indices in the red post-FOMC).The range of moves in bonds, FX, commodities, and vol this week were impressive as we noted below…<\/p>\n <\/p>\n The Euro reverses inside its Ending Diagonal.<\/p>\n The Euro reversed beneath its Ending Diagonal and its Cycle Top at 139.44 last week. \u00a0Last week I had suggested, \u201cEnding Diagonals often have throw-overs in the final week or two prior to a reversal.\u201d \u00a0This appears to be no exception. \u00a0The financial press is downplaying this event.<\/p>\n (Reuters<\/a>) – A three-day dollar rally sputtered out on Friday as world\u00a0markets<\/a>\u00a0adapted to possible shifts in U.S. monetary policy and the euro rose on news of a record monthly\u00a0euro zone<\/a>\u00a0current account surplus.<\/p>\n The dollar, whose gains accelerated on Wednesday after the chair of the Federal Reserve hinted that U.S. interest rates may rise sooner than anticipated, eased against other major currencies<\/a>.<\/p>\n EuroStoxx bounce in an inside candle.<\/p>\n The EuroStoxx 50 index regained some of its losses of the prior week, but could not make a new high. \u00a0This \u201cinside reversal\u201d is known as a bearish Harami in Candlestick parlance. \u00a0A further decline next week will confirm this pattern.<\/p>\n (WSJ<\/a>) \u00a0Given Europe\u2019s reliance on Russia\u2019s energy exports, much analysis of the crisis has rightly focused on the potential economic damage from a shut-off in fuel supplies by Moscow.<\/p>\n Europe has other economic vulnerabilities, however. That\u2019s particularly a problem as the region tries to claw its way out of a two-year recession.<\/p>\n Silvia Merler, an associate fellow at the\u00a0Bruegel\u00a0think tank in Belgium,\u00a0estimates<\/a>\u00a0 European banks have around $150 billion in claims in Russia, compared to the $40 billion in claims by U.S. banks. With more than $50 billion in claims, French banks are the most exposed, including through\u00a0Soci\u00e9t\u00e9 G\u00e9n\u00e9rale\u2019s ownership of one of Russia\u2019s largest banks,\u00a0Rosbank. Italy, Germany and the U.K. banks also have large financial claims in Russia.<\/p>\n <\/p>\n The Yen eases back to Short-term support.<\/p>\n The Yen eases back to its short-term support at 97.87. \u00a0It is now due for a Master Cycle low, which may arrive in the next week. The degree of bearishness depends on whether the Head & Shoulders neckline is broken or not. \u00a0Shold it remain intact, the current Elliott Wave structure remains correct.<\/p>\n <\/p>\n (DailyFX<\/a>) \u00a0Half of the most liquid yen crosses closed out this past week in the green. Though, that should provide long-term bulls little relief. So far in 2014, this once high-flying group is under water. The forces that provided the momentum of 2012 and 2013 \u2013 a reach for yield and the introduction of a massive stimulus program from the BoJ \u2013 have been sidelined. And now, fear is creeping in that there is a very real risk that speculative appetites are starting to wilt and the central bank is shelving plans to upgrade its QE plans. While neither theme is threatening to collapse \u2013 yet \u2013 the\u00a0yen crosses may still topple\u00a0(yen rally) in the absence of further expansion.<\/p>\n <\/p>\n The Nikkei is easing toward its Head & Shoulders neckline. The Nikkei eased further toward the neckline of its Head & Shoulders formation at 13995.86. \u00a0Once the neckline is broken, the Nikkei may drop below its weekly mid-Cycle support at 11793.42. \u00a0The Cycles Model projects a decline into early April.<\/p>\n (Reuters<\/a>) – Japanese stocks retreated from one-week highs on Thursday after Federal Reserve Chair Janet Yellen raised the prospect of interest rate hikes starting earlier than previously thought, sparking a selloff in equity markets and lifting the U.S. dollar.<\/p>\n \u00a0\u00a0\u00a0The weaker yen helped to contain broader market losses as a softer Japanese currency is generally seen as a positive for exporters’ income.<\/p>\n U.S. Dollar reverses from Ending Diagonal.<\/p>\n After extended its Master Cycle low yet another week, the Dollar finally broke out of its Ending Diagonal formation. \u00a0It ended the week closing at weekly Short-term resistance, just beneath its Triangle trendline. \u00a0While breaking above the trendline the dollar will also emerge above Intermediate-term resistance at 80.46. \u00a0What appears to be a temporary reversal may become a real problem for the Dollar bears.<\/p>\n <\/p>\n (ZeroHedge<\/a>) \u00a0While the talking heads are desperate to maintain the myth that this statement is dovish, the fact is, the flow of free money from the Fed is slowing and confusion of the outlooks for growth (and more Fed member see rate hikes in 2015) means Yellen’s dovishness is being questioned aggressively by the bond and stock markets. The S&P 500 fell 12 points.\u00a0Treasuries are getting clubbed with major short-dated selling (and bear-flattening).\u00a0The dollar is surging and gold is down modestly.<\/p>\n (Bloomberg<\/a>) \u00a0The dollar gained to the strongest level in two weeks against the euro after Federal Reserve policy makers signaled they\u2019ll probably raise interest rates by the middle of next year.<\/p>\n The greenback rose versus 14 of 16 major peers after Fed officials raised interest-rate forecasts yesterday and Chair\u00a0Janet Yellen<\/a> said borrowing costs could start rising \u201caround six months\u201d after the Fed stops buying bonds.<\/p>\n Treasuries challenging Long-term support.<\/p>\n Treasuries declined to challenge Long-term support at 132.50. \u00a0The Cycle high made on March 3 remains intact. \u00a0Should the March 3 high remain, we may see a surprise collapse in bonds over the next two weeks.<\/p>\n (ZeroHedge<\/a>) \u00a0Something hilarious, and at the same time pathetic, happened earlier today: at precisely 9 am the US Treasury released its delayed Treasury International Capital data (which was supposed to be released yesterday but was delayed because it snowed) which disclosed all the latest foreign Treasury holdings for the month of January. Among the key numbers tracked and disclosed, was that China’s official holdings increased from $1.270 trillion to $1.284 trillion, that Japan holdings declined by a tiny $0.2 billion, that UK holdings increased by $7.8 billion to $171 billion, and that holdings of Caribbean Banking Centers, aka hedge funds, declined by $16.7 billion.\u00a0Here is Reuters\u00a0<\/a>with the full data summary (save it before\u00a0this article is pulled<\/a>).<\/p>\n So why is it hilarious and pathetic? Because just three short hours later, the Treasury\u00a0–\u00a0that organization that has billions of dollars at its budgetary disposal to collate, analyze and disseminate\u00a0accurate\u00a0and error-free\u00a0data\u00a0–\u00a0admitted that all the previously reported data was in effect made up!<\/p>\n Gold makes a hard reversal. Gold made its peak retracement on Monday as suggested in an irregular Intermediate Wave (2). \u00a0The Cycles Model calls for a month-long decline that may break through the Lip of a Cup with Handle formation in the next two weeks. \u00a0The potential consequences appear to be severe.<\/p>\n (MarketWatch<\/a>) \u2014 A day after Federal Reserve Chairwoman Janet Yellen threw the market a three-word curveball, sellers were in control \u2014 sending prices for gold and silver futures down for a fourth-consecutive session to their lowest settlement levels of the month so far.<\/p>\n Gold for April delivery\u00a0GCJ4<\/a>\u00a0+0.30%\u00a0\u00a0fell $10.80, or 0.8%, to settle at $1,330.50 an ounce on the Comex division of the\u00a0New York Mercantile Exchange<\/a>. Prices had already tallied a loss of 2.7%, or nearly $38 an ounce, over the past three trading sessions and tracking the most-active contracts, they closed Thursday at their lowest level since Feb. 28, FactSet data show.<\/p>\n Crude bounced off \u00a0Intermediate-term support. Crude bounced from Intermediate-term shpport at 98.16 to retest Long-term resistance at 100.24. \u00a0The next support level to be tested is the weekly mid-Cycle support at 96.30. \u00a0There is a Head & Shoulders formation at the base of this rally may be overshadowed by the Cup with Handle formation, with an even deeper target.<\/p>\n (Reuters<\/a>) –\u00a0Crude oil<\/a>\u00a0futures<\/a>\u00a0rose on Friday as fresh U.S. and European sanctions on\u00a0Russia<\/a>\u00a0renewed fears of a supply disruption from the world’s second largest oil producer.<\/p>\n The European Union imposed sanctions against the Russian deputy prime minister, two aides to President Vladimir Putin and nine others on Friday, adding to the nearly two dozen prominent Russians (that) Washington sanctioned on Thursday, including Gennady Timchenko, co-founder of oil trading firm Gunvor.<\/p>\n Within hours of Thursday’s sanctions, Gunvor announced Timchenko had sold his near 50 percent stake in the company to allow the firm, which handles almost 3 percent of global oil supplies, to avoid disruptions to its operations.<\/p>\n <\/p>\n China stocks bounced at a neckline. The Shanghai Index bounced from its Head & Shoulders neckline to challenge Short-term resistance at 2053.63. \u00a0The Cycles Model calls for a brief bounce before it resumes the decline beneath the neckline. \u00a0The ensuing decline may be swift and deep. \u00a0There is no support beneath its Cycle Bottom at 1938.33.<\/p>\n (ZeroHedge<\/a>) \u00a0We have described in detail over the past two years how we believe China\u2019s twin excesses (excessive investment funded by excessive debt) will inevitably unwind, causing a substantial slowdown in China\u2019s economy, significantly below market expectations.\u00a0In recent weeks, a trip to the region and further research into China\u2019s shadow banking system have convinced us that China is approaching its \u201cMinsky Moment,\u201d\u00a0(Display 1) which increases the chances of a disorderly unwind of China\u2019s excesses. The efficiency with which credit generates economic activity is already deteriorating, as more investments are made in non-productive projects and more debt is being used to repay old debts.<\/p>\n The Banking Index repelled by Cycle Top. \u00a0 BKX rose to test its weekly Cycle Top this week at 73.63. \u00a0This is the final probe higher in the Orthodox Broadening formation with bearish consequences. \u00a0The Cycles Model suggests a new low may be seen by mid-April, which heightens the probability of a flash crash.<\/p>\n (ZeroHedge<\/a>) \u00a0It’s mid-March, which means it is time for the annual confidence boosting theatrical spectacle known as the Fed’s stress test (for those who may have forgotten last year’s farce when Jamie Dimon preempted the Fed by announcing a dividend in advance of the results,\u00a0can read here<\/a>). And like in the past, there were absolutely no surprises with 29 of 30 banks passing with flying colors. Of course, since it is a “test”, and someone has the be sacrificial calf, this year that honor falls to Zions Bankshares. Last year its was Citi, SunTrust and MetLife. In both years the results are completely meaningless, as the Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector. Like we said: theatrical spectacle. But at least everyone’s confidence has been boosted.<\/p>\n (ZeroHedge<\/a>) \u00a0\u00a0Moments ago the “absorption” of Crimea into the Russian Federation was completed after Putin signed the final previously passed by parliament. And with that, in less than a month, the Crimean “question” has been answered. The only question is whether Putin will stop here or will the ease with which he just expanded the Russian political map leave him hungry for more.<\/p>\n In other news, as part of the Western escalations against Russia, Bank Rossiya, the one bank exclusively identified in the sanctions list, announced that Visa and MasterCard have stopped, without notification, providing services for payment transactions for clients. Another bank that saw the drop of merchant credit card services was SMP bank, co-owned by brothers Boris and Arkady Rotenberg, who were also on the latest U.S. sanctions list.<\/p>\n (ZeroHedge<\/a>) \u00a0“Of late there has been much breathless wonder expressed at the\u00a0Bank of England<\/a>\u2019s supposedly ground-breaking release. \u2018Money in the Modern Economy\u2019, in which it argues \u2013 shock! horror! – that banks do not lend out previously received deposits, but that they create the latter ex nihilo by first making loans. Alas, as Gunnar Myrdal waspishly observed of Keynes himself, this has been a reaction plagued with the \u2018unnecessary originality\u2019 of those who don\u2019t know their literature.<\/p>\n![\"\"](\"https:\/\/lh6.googleusercontent.com\/efMamheTFHaXRTHYlAP-x27RXooH2GSjbt2dQRMuGAFW13_AxnSJWvKDWVfkqCiDVDLKCh3kvq6MSgU_853R8_PcPgLwy5BHHyVofEZpcM6DmFO9kJ30vaw_92HECm5tE5heCh8\")
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