Just a nice quiet spot where I can post some charts and analysis to share with my friends. Comments and discussion are welcome. . . . . . . . . . .
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There are often times when patterns on charts just get so confusing that even when we make a plea to the more common indicators for guidance, we find that they too offer little in the way of direction. And then we have cute little incidents like the mini-flash crash in the ES futures that occurred on Thursday, Dec. 20th which took all of 2 seconds to cause the circuit breakers to trip and put a halt to trading due to a "limit down" event. And of course all that excitement prompted Zero Hedge to quickly publish one of their patented bullhorn specials explaining How 10,000 Contracts Crashed The Market. It didn't help much that at the time of this mini-crash event the clocks in Asia had already ticked over to the dreaded Mayan "time to pay the piper" date. Surely the crooks who run the world were having the laugh of their lives at the sheer 'coincidence' of it all?
But then something funny happened on the way to the Forum. Or should I say "didn't happen". The markets opened on Friday morning with the majority of investors all around the globe expecting a minimum of 30 down points on the S&P 500 and the evaporation of 300 Dow points. I even had visions of such a bloodbath myself. Silly me. Because what happened next was... well... nothin' basically. Apparently somebody came to the rescue and all was well on Wall Street. We survived the week and the world didn't end.
But let's take a closer look at what "really" happened all day long on Friday. We begin by first taking a quick look at the mini-crash itself as seen on a 'still photograph' of the futures at the time of the crash as displayed at ForexPros. [Helpful hint #224: click on any of the Indices you see in the Index column. Once it opens, select the link to "interactive chart". From there you can create the time frame of your choice on any of them.]
Ok, to begin our little investigation and analysis on just what exactly transpired during on Friday's apparently lackluster trading day, let's back up a bit and see what that mini-crash looked like:
Click on image for a larger version
Obviously as the clock ticked down toward the open of trading on Friday morning, it seemed apparent that all hell was about to break loose on Wall Street. But surprise surprise, that's not what happened. In order to provide a snapshot of the trading activity that occurred during Friday's session at the NYSE, and in order to relate it to the chart above, we take a look at a 5 minute chart of the S&P 500 in approximately the same time frame:
As you can see, after the initial gigantic burst of volume during the first 60 seconds of trading things settled down very quickly. Stick save in action. Notice that volume dried up almost instantly as the market commenced to churn sideways for the remainder of the day. Even the silly Russell 2 million put on a very brave burst in the closing minutes of trading... something I'm always more than ready to mistrust in light of the fact that the Russell is one of the favorite playthings of the venerable JPM theft machine. In the chart below we see how the mighty Russell finished the day [please note that in order to provide you with intra-day volume data, in this case an extremely important metric, I have to use IWM as a proxy]:
[Please also note that on the charts below, clicking the charts themselves will enlarge them. Clicking on
the link below the charts will take you to real time data. In a few
days the following charts will be far enough into the past that they will basically no longer be useful. But by clicking on the charts themselves, the image will be retained]
Here's where this particular little study, one using about as small and sharp a focus as I ever employ, gets very interesting. Note that as was the case with the $SPX, there was of course a huge spike in trading volume in IWM at the opening bell. And as was also the case in the S&P, after the initial opening shock, volume dried up as the session evolved into one of those typically aggravating days of sideways chop. But what we were actually witnessing (in my humble opinion) was one of the largest offloading sessions by the big banks that we've seen in many moons. Call me skeptical, but in light of the information you're about to see in charts below, as it was happening in real time I was not the slightest bit impressed with the volume spike seen in the chart above for IWM. It is afterall one of the tools that JPM does in fact use in their daily arsenal to create smoke screens. In fact, barring some sort of super impressive explosion higher in today's session, the last one before Santa arrives to use your toilet without permission, I believe the data shown in the charts below is a precursor to more downside action.
For those not familiar with $NYUD, it is a method of keeping track of volume by subtracting down volume from up volume. The net result is a print that is either above the zero line (more up volume than down volume) or below the zero line (more down volume than up volume). I keep this chart open every minute of every trading day but only have to refer to it a half dozen times throughout the session. The reason is this: $NYUD has a proven track record of being extremely honest. In the first 60-90 minutes of the trading day, the vast majority of days it sets the tone for what volume is going to do for the remainder of the session. Once $NYUD has established its general trend in the first hour or so, it is extremely reluctant to change course. Secondly, once the path has been established for the day, almost without fail there will be a huge volume burst in the final few minutes of trading which 'finalizes' that trend for the day. Thirdly, and most importantly, on the rare occasions when we see the price action close in the opposite direction as $NYUD suggests price 'should have gone', it is $NYUD that speaks the truth. The following day price will be proven to have been the liar and the vast majority of the time price will pay dearly for its sins. Of course no indicator and no analysis is foolproof, but I've seen enough evidence of these phenomena that I have little choice but to go with the odds... they suggest Friday's action was a well crafted smoke screen.
We begin by looking at a 'typical' picture of what $NYUD would normally look like. In the chart below the white line represents the entire NYSE ($NYA):
Ok, here's where we get to the nuts and bolts of this analysis that I felt compelled to share with you today. In the chart below we note that on Friday past, we saw the largest divergence in a long, long time between $NYUD and the price action in the indices, particularly that pesky IWM. I almost think that I don't even need to explain the chart below any further, except for one small detail... I forgot to draw a couple of lines highlighting the divergence I refer to. Nonetheless, you can still see that amazing occurrence in the image below:
And finally to put Friday's divergence event into proper perspective, we take a look at how huge the down volume actually was when compared to what has occurred in recent months. It's quite clear that this was an event that was very rare indeed. I've broadened the time frame to 3 months+ in order to provide a snapshot of exactly how enormous the disparity was between down volume and up volume, not to mention that all of it was in direct divergence with price action. One of them was lying:
One important aspect to note is that each bar in the chart above covers 2 hours. There is no overlap in those last 4 candles which provides further hints suggesting that it was an 'impulsive' event of massive down volume.
And finally, although we have seen days in the past with much more down volume, it is very rare that the market can make its way through the day by heading higher as it did on Friday. Here's a picture of Friday's action as seen in a daily chart covering a year and a half:
In conclusion, let me be the first to admit that I'm the king of the crow-eaters. My younger brother and I used to kibitz each other (God rest his soul) about which of the two of us was more likely to end up with egg on our face any time we made some sort of claim that seemed even the slightest bit outlandish. But whether the market bursts higher today and tries to make a liar out of me or not... I'm sticking to my guns on this one. It's entirely possible that with what will most likely be a very small volume day today, the market could indeed burst higher. But if volume does indeed end up being minuscule, I'll discount it.
In any case, this particular analysis is very valuable most of the time... and is something so worthwhile knowing that I'm more than happy to share it with my readers and followers. In other words, on this particular occasion I'm willing to take one for the team.
And this time I can say with confidence that this IS the last piece I'll publish before Santa gets here. So on that note I'd like to wish each and every one of you a most wonderful and happy Christmas.
Click here for your Christmas gift courtesy of Albertarocks
Earlier today on Pretzel Logic's great site, a commenter posted a couple of charts for silver. They give
the impression that silver probably wants to fall further. And judging by the
weekly chart for silver it becomes apparent that it has basically been
range-bound for about 15 months now, fluctuating roughly between $26 and
$36. True, that's a big range... one that has even been tradeable for
those who don't mind a sideways market where moving averages become
problematic and momentum indicators take over as the keys to finding
entry and exit points. But the point I'm driving at is that it appears
silver will most likely be heading lower over the next couple of months
at least. Same story with gold. It's even difficult to know which of
those two would decline the most in percentage terms because the
gold:silver ratio itself is also headed more or less due east. But a
closer look gives the hint that for a short while at least it will most
likely be gold that outperforms silver. A few weeks down the road
though their rolls could reverse. However, while all this is happening I
think both metals will be falling. Silver continues to under-perform
for another 2 weeks or so, then gold takes over and begins to fall
harder than silver, catching up. Even if these views don't pan out
exactly right, there's a much more important theme that I'm heading towards here. On a side note, if you'd like to see an example of how 'great' analysis of Elliott Wave Theory should be presented take a look at the most recent installment by Jason Haver at Pretzel Logic's. Amazing work.
Weekly chart of the Gold:Silver ratio. Click here for a larger live and updating version.
If that brief analysis is correct, it would imply that the dollar should start to climb. What in heck could cause that to happen? The fiscal cliff, that's what. I think the crackheads in congress are going to allow the budget to go over the cliff but I highly doubt that is going to be nearly as bad a thing as everybody seems to fear. When was the last time your household suffered as a result of you tightening your spending belt? In the short term, yes it causes some discomfort and probably a few weeks without your $7 Starbucks coffee and your favorite expensive ice cream before bed every night. You'll eat ice cubes instead and pretend they're ice cream. And somehow you'll survive. Six months later you find out that by golly you've got one of those nagging debts already paid off. A great start.
I think that's what's in store for the USA... the budget goes over the cliff. Equities get slammed and probably hard and fast. The dollar soars due to increased confidence overseas that maybe there is some fiscal sanity left in the USA after all. So even though the mighty Thorin Bernankenbeard is going to print trillions more dollars, he's going to need them in order to continue buying up bonds... bonds that are likely to become even more expensive thanks to the fact that the entire global population will have earned a new respect for bonds as a proxy for slightly more fiscally responsible dollars. If we go over the cliff, the following trades could pay off handsomely; long TLT, short gold and silver, especially silver, long the dollar and short equities.
The alternative to going over the cliff
That scenario does not represent anything even remotely resembling the end of the world for the USA. It will at first but that would be a misguided view. In the long haul it would be magnificent if the stupid bastar bastages in congress pull off the surprise of the decade and just let 'er roll over into the abyss... just like the party-boy who fell out the bedroom window of his girlfriend's apartment on the 34th floor, screaming like a 6 year old girl all the way down... and survived. He survived because he only fell 3 feet onto the nice balcony just below her window sill. He stood up, realized that he was still alive and had an instantly renewed appreciation for the beautiful view of the great city sprawled before him. Then he barfed over the balcony. But that was only because the bugger was pissed to the eyeballs... a totally irrelevant factor. Why else did you think party-boy fell out the window? But that's all that would happen I think... America falls out the fiscal window and crashes 3 feet below on a nice lawn. There's hope after all. Equities would get slammed but the country wouldn't. The economy certainly wouldn't start to improve immediately, but over the long haul without a doubt it would end up far better off as compared to what it will look like if nothing at all is done to curb the annual deficits and the overall debt.
To me the views expressed above make the most sense "as long as we go over the cliff", which is what I think is going to happen. If that's what happens, then this article by Bill Patalon, executive editor of Monday Morning would go a long way toward explaining 'why' I could be right about all this. I admit that I couldn't possibly quote the actual numbers like Mr. Patalon did so I wouldn't have been able to explain in defined terms why I hold the views I do... only in general logical terms such as "it makes sense that your household debt will become more manageable if you stop spending like a drunken sailor".
So don't fear the cliff my friends... embrace it. Rejoice and short the hell out of equities for a while. Not yet though, we have to wait until some time closer to the announcement that a deal has not been reached, that it's too late and that we're going over the cliff. I'd fully expect equities to keep soaring almost until the last moment, based on hype, lies and spin stating that the likely outcome will be "Yay, we've all been saved! Yay, we're not going over the cliff, we're going to go hopelessly further into debt. Yay! We're all saved! Santa has arrived. See, stocks are soaring. Everything is great because we're stupid! Yay!" Horsepuckies... the cliff would be the best thing to happen to America in two decades. But not for equities, at least not at first.
Merry Christmas from Alberta, Canada to friends of this blog from all over the world.
In case I don't publish anything else between now and Christmas, let me take this opportunity to wish each and every one of you the most beautiful Christmas you've ever experienced.
Well the Fed did it again today... extended quantitative gorging-on-fiat indefinitely. By adding a new component today to their strategy (a new justification) Bernanke, in the most conniving and sneaky fashion, gave himself the green light to justify more debt monetization until hell freezes over. Because that's how long it's going to take for the unemployment rate in the United States of America to drop below 6.5%.
It's simply amazing to watch the charade continue that seems like it's right out of the Twilight Zone. Prior to the addition of today's new qualifier, all the Fed had to do was to simply continue to lie about the rate of inflation in order to justify money printing on an ever-increasing scale. But in light of the fact that to continue to hide the current horrid rate of inflation in the areas that hurt us the most (like soaring food prices) is becoming more and more difficult, nearly impossible, a new metric had to be introduced. By making it official that future decisions by the board of governors will now be tied not only to the rate of inflation but to the rate of unemployment, a major step has been taken in which the Fed has paved the way for justification for future insanity on their part. And of course in the insidious modus operandi typical of psychopaths who patiently work toward their goal of ruling the entire world, gradually over time the peg-to-inflation aspect will quietly drift off to the land of the forgotten. In the months and years ahead the 'inflation' aspect will be spoken about less and less often and will instead be replaced with ever-increasing focus on the employment rate as being the key determinator. In essence today's statement opens the door for the Fed to supply the drugs to a hopelessly addicted government for perhaps the next 20 years. This is probably as good time as any to ask Chairman Bernanza exactly what it is that he's been smokin' because the country and the currency won't last another five years at this pace let alone twenty plus. Surely Bernanke knows this? Let me answer that question for you. Yes, he does.
Today's Fed statement read, "In
particular, the Committee decided to keep the target range for the
federal funds rate at zero to one-quarter % and currently anticipated that
this exceptionally low range for the federal funds rate will be
appropriate at least as long as the unemployment rate remains above 6
and a half percent, inflation between one and two years ahead is
projected to be no more than a half percentage points above the
Committee's 2% longer-run goal, and longer-term inflation expectations
continue to be well anchored. The Committee views these thresholds as
consistent with its earlier date-based guidance. In determining how
long to maintain a highly accommodative stance of monetary policy."
Up until now the target date for the end of the policy of supplying more and more green powder for congress to blow up their noses was "sometime in 2015". With today's statement the Fed has extended that date essentially to eternity because let's face it, as long as the once-monumental manufacturing sector of the formerly-great USA continues to leave America for foreign shores, the unemployment rate is never going to drop below 6.5%. NEVER. It's going to balloon to 20% and higher. Eventually the rate of unemployment, which is already grossly under-reported, will also become nearly impossible to hide any further. I expect that sometime after 2016, with bodies piling up in the streets, the ability to hide the rate of unemployment no longer be manageable and will have to be be replaced with a new and fresher "qualifier" that would justify even more QE. I'm guessing it will be something along the lines of "once the economy has improved to the point where the annual suicide rate drops below 65 per thousand we would feel quite confident that we may be able to sell a few bonds back into the system".
We have to recognize the reality here friends. The global central banking cartel are going to
print forever. Let there be absolutely no misunderstanding about that. Because the only alternative is literally to allow the
greatest bond market crash in human history to occur. That would
destroy not only the entire global economic network but the bankers
themselves. Which more or less makes their long term itinerary a crystal clear no-brainer, does it not?
As many of you know, a blockbuster announcement was made on Nov. 26th that governor of the Bank of Canada Mark Carney would be taking over as governor of the Bank of England on July 1, 2013... Mayan calendar apparently a non-issue inside the global banking circles. This has to be one of the most incredible decisions in English banking history, considering that ever since that venerable bank was established in 1694 England has never relinquished that powerful seat to anyone but an Englishman. That move raised a lot of questions, a lot of suspicions and as Zero Hedge loves to point out, it pretty much put the finishing touches on the fact that ex-Goldman Sachs monsters were at the helm of most, if not all, the central banks in the world. So who is Mark Carney and what makes him so special?
Rather than going to the trouble of reiterating what I've been telling a few of my friends abroad about Mr. Carney, I'm going to take the lazier route and simply copy and paste a comment I'd made recently to a great friend of this blog, Chartrambler... himself an Englishman who wanted the straight goods from a Canadian who knows Carney, on "what's this guy all about?".
I felt this was an opportune time to publish this particular post because as some of you know, BNN (the Business News Network) keeps an amazing video library to which they add videos on every segment of their programming day approximately 45 minutes after they have aired live in Canada. Mr. Carney was featured in one such interview that ended only moments ago. It's a relatively short segment but it will serve very nicely to let people see how Carney operates and what it is that makes him so personable. For one thing he's a straight up guy who does not present an arrogant persona in any way. He speaks to people with the good manners of a friend sitting across the coffee table.
At this point I briefly debated about whether I should place the video right here at the end of this sentence or at the bottom of the post. I opted to place it at the bottom of the post for what I think is a rather important reason. I'm hoping you will read my comment to Chartramber before you watch the video so that in the event you have already developed an innate hatred for Carney due to his Goldman connections (for which I normally would be right there shoulder to shoulder with you), I would only urge you to consider reading what I related to Chartrambler regarding what Canadians have experienced so far from Mr. Carney. He has been absolutely stellar for Canada and needless to say we sincerely hope he will serve England with the same degree of responsibility and superb helmsmanship. Make no mistake, the man is a powerhouse on a global level. And despite those who are already looking for cracks in the man's armor, pointing out that he was in charge of the BOC during the worst housing bubble of all time, he absolutely did save Canada from the madness of liar loans, etc. The types of loans permitted in Canada during those bubble years were nowhere near the same as the jaw-dropping nonsense that banks not only permitted in the USA, but encouraged.
==========
"Hola Señor Banquero. Mi nombre es PabloPila deDolor. We would like to take out a mortgage for about $492,000. I work flipping many hamburgers and I'm certain I have good job security because I've been at the same company for 14 weeks now. I earn $82,000 per year in that position." To which the banker replies: "Awesome. That's a truly impressive resume you have there Pablum. So let me see... you'd like to borrow $492,000 to go along with your own $6,000 in order to purchase this lovely home for $498,000. You're going to need to furnish that house too I'd think, so whataya say we just round the loan off to $600,000. That way you and the lovely Señora can take a relaxing vacation to some exotic country while you await possession date on your new digs. How does a beautiful vacation in Cancun sound to you? What? You were born there? Oh, then how does some other awesome South American destination sound? Like Italy! Does Italy sound good? You and the Missus can visit the pyramids and everything. Been there myself... loved it. Hahaha... oh never mind, it's none of my business what you do with your new money. Sign here. Have fun!"
==========
What follows is what I reported to Chartrambler over a week ago.
Please recognize that this comment took place as part of banter
between two friends and is therefore not quite "article" material. I
thought it prudent to edit a couple of the words. Here goes:
==========
Thanks CR... glad you like the little diatribes that I post every once in a while. Yeah, Carney is a whole incredible story by himself. I'm so painfully torn about what to think of him. He's a Canadian and as you know all Canadians are good:-) That's partly why they chose him... to promote the idea that a pristine banker coming to the rescue can only be a good thing. He has been called the "only respected central banker left in the world". And he 'is' very respected, which is partially what makes him so scarily powerful. He's such a confident individual, intimidated by absolutely nobody, that he's probably too formidable for pretty much anybody to tangle with. Jamie Dimon found that out the hard way when that arrogant bastaprick buffoon attacked Carney for stating that global banking had to be totally reformed. Dimon attacked and the stupid little punk took a one-punch knockout for his troubles. But the fact of the matter is that Carney is an ex Goldman guy. By that metric alone, and by default, that means that inside he's a satanic bastard who will just pull the banker wagon onward in history toward their ultimate goals.
On the other hand, he's an incredible story. He came out of nowhere... born way up in the Northwest Territories. Seriously man, that is Eskimo country... literally. I mean Fort Smith is a little town out in the middle of a vast frozen wasteland 400 miles from the nearest tree. Both his parents were teachers. He and his brothers all ended up at Harvard which is where he no doubt met the ruling class. The women say he's good looking but I reserve judgement on that. I can say though that he's charming and very respected at home and abroad. He's scary smart. I'm talking "brilliant" when it comes to damned near everything, including maintaining a pristine public image and a very high degree of "likability" as opposed to the arrogance that banking pricks like Dimon and Paulson normally exude.
So in a nutshell Carney is attractive (according to some of the ladies of the world), clean, charming, brilliant and appears out of nowhere. Does that not fit the description of the anti-Christ? Yes it does. I don't want to believe it. I want to believe that Carney will shape up the Bank of England and drive all the serpents out. But wait... he's a Goldman guy, which is first and foremost.
When you get to see more of him over there you'll instantly recognize what I'm talking about. The guy is just so sharp, clean and likeable that you'll be impressed. The people in England are going to fall in love with this guy. That's what makes him potentially so dangerous. Is he good or is he evil? One thing I know for sure is that he completely protected Canada "from" Goldman which is partly why at the current time Canada is one of the only sparkling gems left out there. We know that won't last of course if the shit hits the fan but at least Carney has protected us from Goldiesatan so far. Can he do that for the whole world? Does he want to? Let's keep our fingers crossed but I realize... he's an ex-Goldman guy.
One final note... he used to be a goalie in hockey and if anybody can make a stick save it's a hockey goalie. I don't really like the implications of that.
============
If anyone might be interested in reading more commentary that was exchanged between myself and other persons curious about Mr. Carney, most of them occurred in the comments section on my last post which can be found here:
Here's the link to the Carney interview which aired in Canada about an ago (December 11, 2012). This is Carney as Canadians see him on a fairly regular basis.
EDITED FEB. 21ST, 2013 - Just
adding this update to inform readers that the number of new 52 week highs had, until Tuesday, still been very healthy. That metric has changed in a hell of a hurry and today the numbers for new highs and lows were 62 and 42 respectively. These are right in the range where the HO is suddenly sitting up and dusting itself off. The best news is that this time around the HO is in no danger of going off-line any time soon due to a rule violation (regarding the 50 day MA on the NYSE). We haven't had that luxury the last few times it got close to issuing a signal.
Keep in mind that contrary to 'any and every' report you've read in recent months, the HO has never gone off since August of 2010. Every single report you might have read, I also read... and every single one of them was in error because in most cases the HO wasn't even on line at the time. You can't get a signal from your television if it isn't even plugged into the wall, yet some of the other analysts who are not aware of the very strict rules apparently have the ability to watch TV when it's not plugged in. A cool trick, but I wouldn't trust the news from a TV like that.
So stay tuned, we'll be updating this post as well as my ongoing reports at Seeking Alpha that have been running for 3 1/2 years now.
EDITED NOV. 8TH, 2012 - Just
adding this update to inform readers that the close shaves are
continuing. Repeated 'near misses' represent exactly the same type of
activity we saw in the market internals just before the last HO signal
events. That shouldn't necessarily be taken to mean that "a signal is
definitely coming" because that's not necessarily the case. Needless to
say though, it's certainly fair warning that regardless of whether the
HO actually goes off or not, the markets are obviously on very shaky
ground at the moment and are very polarized. At the close of trading
today the NYSE had generated 61 new highs and 85 new lows. Had it produced
86 of each the HO would have issued a signal. These types of close
shaves should be viewed as being 'near misses' because the message they're
delivering is still the same... the markets are on very thin ice right
now. On a side note, there was even one popular blog that 'today' reported that the HO has gone off. It hasn't. Right on that website, the author quotes the rules required for the HO to issue a signal and as much as I hate to be the bearer of bad news, those rules are 3 years old. Nonetheless, that's a nice blog and the author is just another in the long list of innocent TA guys who didn't get the memo back when the rules were changed. Nobody can blame him for that. To his credit, he is looking at all the right things and is fully aware of the implications. He's also probably a very nice man and to top if off, he's a Texan. Texans and Albertans have always gotten along very well, mainly because of interactions concerning the oil business. :-) ============== original article follows below ==============
I'd just like to post this heads up that
the Hindenburg Omen came about as close today to issuing its first
signal since August of 2010 as we're ever going to see without it
actually going off.
Contrary to any and all reports you may have read stating otherwise, the HO has not gone off at any time since that instance back in 2010.
A full explanation about why any previous reports that you may have
read were absolutely false will be contained in a full article that will
appear on this very page when the HO does issue a signal. It's all
those false claims by analysts who aren't even aware of the HO's rules
that give it such a bad name. It's the real deal, I assure you. So
please stay tuned.
Also, please be aware that this type
of "near miss" occurred several times in the days leading up to the
HO's signal during the week before and the "morning of" the flash
crash. Don't forget to click the tab at the top of this page if you
haven't already done so and read about "So The HO Issues A Signal. What
Happens Next?" Awe to heck with it, just click this thing.
It's
still possible the HO won't issue a signal at all, especially if
there's some solid buying that enters the market tomorrow and
thereafter. It wouldn't take much to change these market internals
dynamics for the positive but until we actually see it, rest assured
that the market is extremely polarized and fragile right now. But until
the HO actually goes off, why don't you come on up north and we'll do a
little surfing, Canadian style.
Surfin' Like A Boss
Please feel free to bookmark this page and
check in regularly since the HO is just humming right now and has been
for the past couple of weeks.
I'd just like to post this heads up that the Hindenburg Omen came about as close today to issuing its first signal since August of 2010 as we're ever going to see without it actually going off.
Contrary to any and all reports you may have read stating otherwise, the HO has not gone off at any time since that instance back in 2010. A full explanation about why any previous reports that you may have read were absolutely false will be contained in a full article that will appear on this very page when the HO does issue a signal. It's all those false claims by analysts who aren't even aware of the HO's rules that give it such a bad name. It's the real deal, I assure you. So please stay tuned.
Also, please be aware that this type of "near miss" occurred several times in the days leading up to the HO's signal during the week before and the "morning of" the flash crash. Don't forget to click the tab at the top of this page if you haven't already done so and read about "So The HO Issues A Signal. What Happens Next?" Awe to heck with it, just click this thing.
It's still possible the HO won't issue a signal at all, especially if there's some solid buying that enters the market tomorrow and thereafter. It wouldn't take much to change these market internals dynamics for the positive but until we actually see it, rest assured that the market is extremely polarized and fragile right now. But until the HO actually goes off, why don't you come on up north and we'll do a little surfing, Canadian style.
Surfin' Like A Boss
Please feel free to bookmark this page and check in regularly since the HO is just humming right now and has been for the past couple of weeks.
This is the third in a series of articles dedicated to the $CRX and its relationship with the S&P 500. The original installment was first published May 12, 2011 and as reported by Mr. John Lounsbury, that particular piece became the #1 most read article on Global Economic Intersection over the following 2 quarters. For a completely inexperienced writer that was a rather surprising but welcome development because not only did it act as a vote of confidence that perhaps I should consider continuing to write the occasional article, it definitely indicated that readers were seeing merit in the revelations that particular study contained. A follow up article was published on Jan. 2 of this year once it became apparent that significant changes were occurring in the ratio and that it was indeed behaving as predicted. More specifically, as suggested would likely happen, the ratio began to reveal the fact that deflationary forces were showing up in the $CRX long before they would become readily visible to the naked eye by most other measures.
Ultimately the original goal of this study was to determine firstly whether or not the commodities only related stocks had been behaving differently than the stock markets in general over the past dozen years and secondly, to determine whether or not the results of the study could be used as reliable evidence that might assist in determining the future direction of the overall stock markets. The answers to the first question was "yes they have and in jaw dropping fashion". And the answer to the second question was "most likely, since the ratio is very sensitive to the inflows and outflows of funds as a direct result of inflationary or deflationary forces".
In this installment we're going to zero in on a very recent development that seems to be pointing to the real possibility that after a year and a half of watching the commodities related stocks seriously under-perform the S&P 500 [for the first time in a dozen years], somebody has apparently lit a match to the bed of kindling otherwise known as the entire global commodities sector. I say that a bit facetiously because it's more than obvious that a good deal of the history of the flight of capital into the commodities markets certainly wouldn't have occurred had the central banks of the world not provided oodles of liquidity in the first place. But on the demand side there's no question about it, in certain sectors of the commodities industry there currently exist very real shortages that in itself would absolutely drive commodities prices higher... whether the world was flooded with new liquidity every week or not. In some cases that is definitely what's suddenly happening right now.
For example, although off the recent highs, the price of corn has exploded higher by 52% just since the end of May. Soybeans have risen from $1100 to $1780 in the space of just 9 months. That represents a whopping increase of (oh my, the Elliotticians are going to love this one) 61.8%. And the most frightening one of all... in the span of one month from mid June to mid July the price of wheat on the world markets popped a stunning 55%. Not all of these increases can be attributed directly to the generosity of Mr. Bernanke. A good deal of it is without a doubt weather related although let me be the first to theorize that any time the corn belt suffers a drought, that too is most likely Bernanke's fault. Regardless of the reasons why grains are exploding in value, the net result is that in the past few weeks, ironically since QEternity was officially announced (or perhaps not ironically), the US dollar, the $CRX, the $SPX, and the $CRX:$SPX ratio itself have all broken significant trend lines. In doing so, each and every one of them is signalling that the world may once again suddenly be in the process of blasting off in a new round of inflation, perhaps crushing inflation. These are serious trend lines, months in the making.
If history is to be considered a reliable guide we should trust that any time we see the $CRX rising and it's ratio with the S&P 500 rising, the stock markets in general have risen as well... every single time. So ultimately what we want to know is whether or not the ratio has indeed recently turned higher with conviction... and whether or not it is likely to be a sustained assault. So we begin with the monthly chart below which covers the entire duration of this study going back to late 1999:
$CRX:$XPX ratio Monthly: Click here for a live and updating version. If I'm not mistaken, non-subscribers to Stockcharts won't see the annotations. If that's you, you can click here for a "print" version which will show them.
The first thing that just jumps off the chart, the very reason for this article, is the fact that for 4 weeks now the ratio has been putting in an effort to find a bottom. True enough, it is entirely possible that it could be nothing more than a standard re-test of the yellow 13 year long rising trend line. However, fundamentally I think there are numerous reasons to doubt that's the case. For one thing, the central banks of the world have made it very clear, they are all going to print their own currencies in an effort to reflate the entire world. It's essentially an admitted no holds barred race to the bottom for the currencies. The second reason is that the overall food supply for all of humanity is deep, deep under water. And no I'm not talking about the fish supply because that's the only food source that should be deep under water... and it's not there. The food supply for all of mankind is in trouble and possibly irreversibly so. In other words we may never catch up from here, especially with the population of the planet continuing to grow relentlessly while the sources of food diminish every single day. It's a head on train wreck happening in slow motion right before our very eyes. Jim Rogers is no stranger to the scary implications these trends carry. I'd like to be able to claim that Mr. Rogers and I had a lengthy telephone conversation about the situation last evening but unfortunately I cannot. It seems that every time he calls me I'm busy putting a new roof on the igloo or something. In any case, here's Jim Rogers' take on the worsening food commodities story:
So we definitely want to drill down to a weekly chart in order to better investigate what's really happening "on the local scene" as it were... time-wise. Admittedly this is a big chart, but it provides a beautiful "one stop shopping experience" in that we can see all 4 components of this entire study and how they relate to each other, in one glance:
$CRX:$XPX ratio Weekly: Click here for a live and updating version.
It appears that what we're witnessing is that funds are beginning to flow back into the commodities only related stocks after 5 straight quarters of having fled that sector. Or at least seriously threatening to. As the original study showed, the ratio itself revealed that for over a decade liquidity had been more than abundant as witnessed by the fact that between 1999 and May of 2011 the commodities only stocks gained 6400% of the amount the S&P did. In other words over those 12 years the $CRX rose 64 times as much as the S&P did. How remarkable is that? After the recent 12-15 month correction in the ratio, we find that the commodities only related stocks are now only sporting 21 times the gains of the S&P 500. That really is a significant correction.
The bottom line was that although the Fed had been supplying liquidity for decades in order to prop up the bond markets, not to mention supplying a crack addicted, sick leaderless government spearheaded by a totally inept and corrupt congress, a huge percentage of those funds were being channeled through the central banks where it was immediately converted to "fun money" for their own use in the higher risk casinos of the world. Commodities markets are one such casino. And although that casino appeared to have gone out of business when the ratio peaked in the spring of 2011, it seems the high rollers may indeed recently have stepped back up to the tables.
The most obvious recent development seen in the weekly chart above is that all 4 components of this study broke a major weekly trend line during the week of September 3rd. Note the number of "UH OH"s on the chart. In the case of the S&P 500 though, the break is not yet impressive. In fact it looks more like a relatively weak overthrow at this stage. Nonetheless, 10 days later, to borrow a sentence as reported here, "A third round of quantitative easing, a set of asset purchases designed to increase the money supply, has been announced by the Federal Reserve. It said it would keep easing until job growth accelerates, and continue a "highly accommodative" monetary policy "for a considerable time after the economic recovery strengthens." "FOR A CONSIDERABLE TIME AFTER THE ECONOMIC RECOVERY STRENGTHENS".
Friends, that's a long, long way off.
What Mr. Bernanke is promising the world is that the Fed is going to hold rates down to zero pretty much at any cost under the guise of trying to save the world. The truth is that they're not "saving" but "enslaving" the world. In order to print they need something to buy. The debate seems to be about whether or not there's enough junk out there in the world for the Fed to purchase on an unending basis. Personally I don't think that's the only important question. I think the real question is "when is the world going to sit up and realize that the real goal is that they want to do just that, purchase every single debt in the world so that they have complete and total ownership of it. Of us. That is their ultimate goal, world domination by enslaving every debtor on the planet for eternity. At that point, who cares if the entire world defaults? Certainly not the central bankers, not as long as they have title to all things saddled with debt, which by the way includes most real estate on the planet and half the governments of the world. And of course, the governments are the people. And after all the smoke has cleared the bankers will be standing there holding title! This is exactly how they're carrying that objective right before our very eyes. We are currently in the end game no matter which direction the markets finally decide to travel.
Ok, in summary here's what has happened over the past 20 months. Early in 2011 we got the first signs of a top in the ratio. That signaled a major turning point in the business of "inflation". From that point forward it was starting to become abundantly clear that deflationary forces had indeed been creeping out of the bottle all over the globe, Over the ensuing 12-15 months it appeared that the great deflationary cycle had begun. I was certain that the great deflationary collapse was upon us. Tonight that no longer seems the case. It truly looks like the deflationary phase might over although another week or two will likely be required before we can be more comfortable that we know what lies in store for perhaps years to come. At minimum, the ratio is currently trying to bottom and is at least 'threatening' to rise back above that incredible 13 year old trend line. If successful, the implications are that the world has reverted right back to the old standard,13 year theme of "print, print and print some more. Deflation must be defeated at any cost". The implications would be very, very inflationary, especially if the banks even 'dare' to issue loans in big numbers. Stock markets don't tank in such a scenario. At least they haven't in the past. Which leads to one more horrible possibility.
THE WORST POSSIBLE OUTCOME: It is possible that in spite of their every effort, the central banks of the world might not be able to contain a bond market sell-off. In that case they would surely just crank up the printing presses even faster in an ever-failing effort to hold rates down. That would just feed into the inflationary theme, at least as pertains to the CRX. However, rising rates would be devastating for the bond markets and for the economies of the world. And if funds were to flow out of the bond markets, well... you know where they end up. At the end of the day if the bankers were to lose the bond battle the result would almost assuredly be an inflationary depression in many aspects of our lives, like in the cost of things we need but don't have such as food and fuel. Those items would soar. But deflationary in things we already have but don't necessarily need... like a piece of land to park our trailers on. The value of real estate would crumble. In either case, whether the central banks are ultimately successful or not, the outcome would probably be best described as stagflation. Which would ultimately lead to a depression of the most horrid kind. Because if the world economies are sputtering while rates are at zero, with unemployment already as high as 25% in some countries (Spain) imagine what would happen to them with rates at 4%, 6%, 8% and higher. I dare say that's one scary scenario we'd rather not walk into. Ultimately we may not have a choice. As of this moment though, thankfully that outcome is no more than just a mere 'possibility'.
So at this early stage of what 'could be' a major inflection
point, we have to consider the inevitable question; "Is the ratio just back-testing the 13 year long rising trend line?". I dare say the answer is; "No, that prospect is exceedingly unlikely. The ratio is likely to break up through that trend line with inflation resuming yet again. Bernanke as much as promised that outcome." Nevertheless we need
to respect that all options are still open and that the central bankers of the world might indeed fail in their quest. We have no choice but
to simply monitor these charts in the weeks ahead. One thing we know with 100%
certainty... they will not lie to us.
To that end, I've included a daily chart below so that we can watch these critically important developments over the coming days and weeks. Feel free to bookmark this chart as it will update in real time. What we're watching for is whether or not the ratio climbs back up above the rising 13 year old trend line. Beyond question the Fed's goal, if successful, would ensure that outcome. All that remains to be seen is whether or not they succeed.
$CRX:$XPX ratio Daily: Click here for a live and updating version.
From the Elliott Wave perspective, one important aspect seen on the daily chart above is that the current rise in the ratio could still just be a 4th wave higher which would imply that there would be at least one more thrust lower. But I have a rather difficult time accepting that as the likely outcome since it would also imply that equities would be falling fairly hard over the next few weeks. Right in front of a US presidential election that is only 6 weeks away? I don't think so! But stranger things have happened I guess. For example, as a teenager I had a friend who had a big wood screw in his belly button. I asked him what it was for. He claimed he didn't know so I suggested he take it out. So he unscrewed it and his ass fell off. But I digress.
So there we have it. We're absolutely at a critical inflection point. Either the $CRX:$SPX ratio is going to explode higher from here which would be the logical outcome if the Fed's policy succeeds - OR - the ratio is going to plunge in a 5th wave lower (at least) and the deflation genie will officially be out of the bottle. More than likely this ratio and this study are going to provide a concrete answer earlier than most other indicators out there. At least that's the goal.
On a final note, what kind of a father would I be if I didn't take this opportunity to wish my son a great day on this, his birthday. Happy birthday big guy. Can't wait until we can finally get together again and try out your sail boat. Love ya!
Thanks to all for reading and until next time... smooth sailing!
Yesterday I was talking with a friend who was telling me that it was his dad's 63rd birthday on Sunday. Craig went golfing with his dad that day on a beautiful long Labour Day weekend. [I'd better also spell it 'Labor Day' for our American friends or they won't have a clue what I'm talking about. Just a courtesy to our pals south of the border who are still the only country in the English speaking world who can't handle 'u's where they 'think' they don't belong, lol.]
Anyway, Craig informed me that he'd also bought his dad a birthday present, a nice big juicy beef roast. The price? $64.00. Apparently my friend also had plans on dining at his dad's house after putting in 18 holes and shooting a score of 82. But all this reminded me of one vision I remember from my youth, back in the days when I was an 11 year baseball star. At least I thought I was a star. My team mates thought I was the designated base stealer. In any case the image came back to me as vividly as if it had been only yesterday. I don't know why I have such a sharp memory for what seems like every day of my childhood, but whether that be a good thing or a bad thing... I do. I remember incidents and conversations between adults when I was 2 years old and even younger. I remember their names and faces... even as my mother was holding me in her arms while shopping for some sort of cloth. Mrs. Reach was commenting on my eyes. I remember riding my little bicycle as fast as I could on the sidewalk one day, turning the corner sharply only to slam into Mr. Eckmeyer's big belly as he came walking around that same corner. Needless to say it wasn't Mr. Eckmeyer who got bounced 30 feet. I've always been thankful that his big belly was soft or I'd still be picking my teeth out of the back of my skull to this day. What a face plant that was! Probably a record breaker but I digress...
My younger brother and I had piled into our dad's old '52 Chevy on a bright and sunny Saturday morning with our parents and we headed off to the local shopping center to hit up the old food mart. No we didn't rob it, my folks had a few dollars. Yes we were poor and the green Chevy was an old car even for back then. But we had enough money for groceries.
About an hour and a half after leaving the house, my brother and I found ourselves sitting in the back seat of the car once again with grocery bags piled up so high between us that we couldn't even see each other, grocery bags between our feet and grocery bags in our laps. The trunk was so full of groceries that when my dad finally coaxed it shut the watermelon exploded. Our mom was sitting in the passenger's seat with grocery bags piled up between her and our dad, groceries on the floor between her feet and groceries in her lap. My dad had a bag of groceries on his lap and a 10 lb. bag of potatoes hanging from his face, the bag clenched firmly between his teeth. Yup, we'd gone grocery shopping alright.
Once we got home and started to help unpack all the goodies, I remember my mom saying to my dad, "Good Lord Eddie, can you believe the price of groceries these days? Imagine that, $50 for just a car full." And people wonder why, when every time I walk past the meat counter at the local supermarket, I tend to puke on the floor. I realize that might be a disgusting habit but it's not because I don't love meat, it's because I have an incredible memory for visions from my youth. And $50 for a boat load of food is one of my more cherished ones. $64 for a single beef roast isn't.
So is it any wonder then that so many of us have this little quirk of wanting to know what our currency is doing relative not only to food items, but relative to all the other major currencies in the world? Here in Canada we want our currency to be relatively stable and to remain relatively close to parity (or a bit lower if possible) with the American dollar. So far so good. It's an amazingly well managed pair and considering that those two currencies represent the largest single trading block between any two countries on the planet, it's critical that it remain well managed to the best extent possible. Because god only knows, the last thing the Americans need is for their currency to suddenly tank and the Loonie to suddenly surge. Imagine if we woke up one morning and realized that the Canadian dollar had quietly but steadily climbed until it became worth twice what the US dollar is. The cost of Canadian crude to the USA would have doubled just that fast. And the cost of all other Canadian exports would be so expensive we'd have a hard time selling them at all. Nope... none of us want that... we want stability and relative parity if possible.
Other currencies and other pairings have relationships with each other that are just as important. The Australian dollar and the Yuan have their own unique relationship. The Australian dollar is also unique for another reason... its use in the currency carry trade casino. It's for that reason that the Aussie:Yen pair is so very important as a measure of the appetite for risk. Because when bankers can borrow Yen at next to zero interest and re-invest those Yen into relatively high paying Aussie dollars and bonds, they can just sit back and listen to the old cash register ring up profits day in and day out by investing money that they never even had in the first place. They're using money they don't even have, and lots of it, to churn profits almost out of thin air. It's a great gig when it's going their way.
But what happens when something goes wrong? What happens when something that they weren't counting on suddenly almost scares the crap out of them, or at the very least causes their O-ring to tighten up just a little bit? What happens when they get the sudden and undeniable urge to take a dump dump some of their holdings in order to reduce their exposure to risk? The first thing they do, every damned time, is to unwind that risky currency trade they've got going with the Australian dollar. They have to sell those Aussie dollars in a hurry, and at just about any cost, in order to pay back those Yen they borrowed... and in doing so, reduce their overall exposure to a very risky currency play. It's a practice that will happen every time the biggest players get a scare. And when they get a scare all of us had better pay attention.
About this time last year, the American dollar suddenly and inexplicably seemed to put in what appears to have been a meaningful bottom. It remains to be seen whether or not the uptrend in the USD is going to continue but one would have to think that with 3 or 4 rounds of quantitative easing already in the books and another one being threatened, the dollar should have fallen right off the table by now. Why hasn't it? Because the evidence that deflationary forces are at work are becoming quite apparent if we look in the right places. I've written several studies that provide overwhelming evidence that deflationary forces are indeed at work and have been since year 2000. But that's not the topic of this conversation and I won't take that aspect any further today.
So since the American dollar put in what appears to be a meaningful bottom last summer, where does it stand relative to all the other key currencies in the world? What have they been doing and where do they stand relative to each other? In this simple chart we go back to the time of the low in the USD, the beginning of May, 2011 and start from there. On that day, every currency on the chart below begins with zero % fluctuation. It's the starting point and from that day forward we map out the direction each currency has taken and the percentage move each has traversed since the first day on the chart.
Major Global Currencies Performance Style Since the USD Low of Last Summer. Click here for a live and updating version.
It's pretty easy to see that late last month an inflection point seems to have been reached in several of the currencies. The USD started to pull back. Was that the top in the dollar? Not likely... not likely by a long shot. At least according to the evidence provided by several studies.that show deflationary forces bubbling and boiling just below the surface. The $CRX story is the most amazing one I've come across to date. So as could be expected, the other major currencies that do a lot of dealing with the American economy have gone the opposite direction that the USD has. The Pound turned higher, the Swissie and the Euro did the same. The Yen has remained relatively flat but the Australian dollar... what's up with the Australian dollar? It's the only global player that is dropping along with the American dollar. And why is that? There can only be two reasons, a softening in the Chinese economy and/or currency carry unwind caused by credit contraction. It's both.
Without presenting any analysis on the Aussie:Yen currency pair and without really presenting any analysis here at all, I just wanted to provide this 'overall' picture of what the major global currencies have been up to since the day the US dollar put in what could conceivably have been a multi-year low. I'm not making that claim at this time because I don't know for sure and I haven't done any serious currency studies for quite some time. Suffice it to say, one glance at the currencies in the chart above and two stand out like a sore thumb. The US dollar and the Australian dollar. Personally I expect every currency on the chart above to reverse direction except one... the Aussie. I expect the US dollar and the Yen to remain above the zero line, the others to remain below it and the dollar to outperform the Yen slightly in the months and perhaps years ahead.
Thanks for reading this far, and just a polite heads up.. if you don't particularly care for shopping stories please don't bother reading any further. You can save yourself a bit of time that way.
All the best and until next time... keep smilin'.
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Who said animals don't have a sense of humor? This guy obviously does. For me the funniest part is in the first 1/50th of a second of the video when "the plan" is hatched in the kangaroo's head. He's thinking: "Ok, I'm gonna get this little pecker. Watch this guys!"
